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Stochastic Technology, Risk Preferences And Adoption Of Site-Specific Technologies

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  • Isik, Murat
  • Khanna, Madhu

Abstract

This paper develops a model of farmer decision-making to examine the extent to which uncertainties about the performance of site-specific technologies (SSTs) and about the weather impact the value of these technologies. The model uses the jointly estimated risk and technology parameters to examine the impacts of SSTs on returns and nitrogen pollution. The availability of uncertain soil information and production uncertainty can lead risk-averse farmers to apply more fertilizers and generate more pollution. Ignoring the impact of uncertainty and risk preferences of farmers leads to a significant overestimation of the economic and environmental benefits of SSTs and underestimation of the required subsidy for inducing adoption of SSTs. The model that accounts for uncertainties about soil conditions and production as well as risk preferences of farmers provides an explanation for the low observed adoption rates of SSTs. Improvements in the accuracy of SSTs have the potential to increase the incentives for adoption.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2002 Annual meeting, July 28-31, Long Beach, CA with number 19858.

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Date of creation: 2002
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Handle: RePEc:ags:aaea02:19858

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Related research

Keywords: spatial variability; risk preferences; joint estimation; uncertainty; technology adoption; nitrogen runoff; Research and Development/Tech Change/Emerging Technologies;

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References

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  1. Lambert, David K., 1990. "Risk Considerations In The Reduction Of Nitrogen Fertilizer Use In Agricultural Production," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 15(02), December.
  2. Feder, Gershon, 1980. "Farm Size, Risk Aversion and the Adoption of New Technology under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 32(2), pages 263-83, July.
  3. Giannis Karagiannis, 1998. "Interactions between Agricultural and Resource Policy: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 419-421.
  4. Bruce A. Babcock & Gregory R. Pautsch, 1997. "Moving from Uniform to Variable Fertilizer Rates on Iowa Corn: Effects on Rates and Returns," Center for Agricultural and Rural Development (CARD) Publications 97-wp182, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  5. Khanna, Madhu & Isik, Murat & Winter-Nelson, Alex, 2000. "Investment in site-specific crop management under uncertainty: implications for nitrogen pollution control and environmental policy," Agricultural Economics, Blackwell, vol. 24(1), pages 9-21, December.
  6. Asche, Frank & Tveteras, Ragnar, 1999. "Modeling Production Risk With A Two-Step Procedure," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(02), December.
  7. Just, Richard E & Zilberman, David, 1983. "Stochastic Structure, Farm Size and Technology Adoption in Developing Agriculture," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 307-28, July.
  8. Pollak, Robert A. & Wales, Terence J., 1991. "The likelihood dominance criterion : A new approach to model selection," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 227-242, February.
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  10. Babcock, Bruce A. & Carriquiry, Alicia L. & Stern, Hal S., 1996. "Evaluation of Soil Test Information in Agricultural Decision-Making," Staff General Research Papers 1139, Iowa State University, Department of Economics.
  11. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June.
  12. Hennessy, David A. & Babcock, Bruce A., 1998. "Information, Flexibility, and Value Added," Staff General Research Papers 1362, Iowa State University, Department of Economics.
  13. Thomas, Alban & Bontems, Philippe, 1998. "Information Value And Risk Premium In Agricultural Production Under Risk: The Case Of Split Nitrogen Application For Corn," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20844, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. Babcock, Bruce A. & Shogren, Jason F., 1995. "The cost of agricultural production risk," Agricultural Economics, Blackwell, vol. 12(2), pages 141-150, August.
  15. Bar-Shira, Z. & Just, R. E. & Zilberman, D., 1997. "Estimation of farmers' risk attitude: an econometric approach," Agricultural Economics, Blackwell, vol. 17(2-3), pages 211-222, December.
  16. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February.
  17. English, Burton C. & Mahajanashetti, S.B. & Roberts, Roland K., 1999. "Economic And Environmental Benefits Of Variable Rate Application Of Nitrogen To Corn Fields: Role Of Variability And Weather," 1999 Annual meeting, August 8-11, Nashville, TN 21533, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  18. Katz, Eliakim, 1984. "On variability under certainty," European Economic Review, Elsevier, vol. 26(1-2), pages 109-113.
  19. Gary Kachanoski, 1999. "Economic Feasibility of Variable-Rate Technology for Nitrogen on Corn," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 914-927.
  20. Murat Isik, 2002. "Resource Management under Production and Output Price Uncertainty: Implications for Environmental Policy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 557-571.
  21. Babcock, Bruce A., 1992. "Effects of Uncertainty on Optimal Nitrogen Applications (The)," Staff General Research Papers 10588, Iowa State University, Department of Economics.
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