Automatic, or robotic, milking systems have the potential to significantly change the way milk is produced on U.S. dairy farms. However, there is a high degree of uncertainty associated with adoption of this new technology. A real options approach is used to analyze the decision to replace an operational milking system with an automatic milking system. The most important source of uncertainty is shown to be the length of the technology's useful life. Under our assumptions, the automatic system is always an optimal investment if it is certain that it will last longer than the operational system being replaced.

The economic feasibility of investing in sprinkler irrigation technology for rice production is investigated using linear programming and capital budgeting to identify the net annual benefits and net present value, respectively. Groundwater and both flat rate and volumetrically priced surface water sources of irrigation water are analyzed. Under typical practices occurring in rice production operations in the Texas Rice Belt, sprinkler irrigation technology is not profitable at current water costs. Producers using volumetrically priced surface water have the greatest incentive to consider sprinkler irrigation, but water prices must increase by over 250 percent for the investment in a sprinkler irrigation system to become attractive. Yield reductions associated with sprinkle-irrigated rice are a significant disincentive. For equivalent flood- and sprinkle-irrigated rice yields, an increase in water prices of over 175 percent is required before the investment in a sprinkler irrigation system becomes economically feasible.

We investigate the model of Froot & Stein (1998), a model which has very strong implications for risk management. We argue that their conclusions are too strong and need to be qualified. We also argue that their analysis is incorrect and incomplete. Specifically, there are some unusual consequences of their model, which may be linked to the chosen pricing formula.