Firstly, we intend to identify determinants that influence capacity adjustments in hog production. An understanding of the adjustment behaviour of hog producers is essential to predict or to control the structural change in this industry.
Secondly, from a more theoretical viewpoint, we wish to contribute to the empirical validation of real options models. Our results draw the attention to sunk costs and uncertainty. An important implication of our results is that the observed inertia in capacity adjustments need not to be interpreted as a kind of inefficiency. This knowledge is helpful for the design of measures falling into the second pillar of the common agricultural policy (CAP) like for example investment programmes and retirement programmes.