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

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Author Info
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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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;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. 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. [Downloadable!] (restricted)
  2. Babcock, Bruce A. & Shogren, Jason F., 1995. "The cost of agricultural production risk," Agricultural Economics, Blackwell, vol. 12(2), pages 141-150, August. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Harvey, A C, 1976. "Estimating Regression Models with Multiplicative Heteroscedasticity," Econometrica, Econometric Society, vol. 44(3), pages 461-65, May. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  6. Katz, Eliakim, 1984. "On variability under certainty," European Economic Review, Elsevier, vol. 26(1-2), pages 109-113. [Downloadable!] (restricted)
  7. Bruce A. Babcock & Alicia L. Carriquiry & Hal S. Stern, 1996. "Evaluation of Soil Test Information in Agricultural Decision Making, An," Center for Agricultural and Rural Development (CARD) Publications 96-wp147, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
  8. Hennessy, David A. & Babcock, Bruce A., 1999. "Information, Flexibility, and Value Added," Staff General Research Papers 1362, Iowa State University, Department of Economics.
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  9. Bontems, Philippe & Thomas, Alban, 2000. " Information Value and Risk Premium in Agricultural Production: The Case of Split Nitrogen Application for Corn," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 82(1), pages 59-70, February. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
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  11. 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). [Downloadable!]
  12. Babcock, Bruce A. & Pautsch, Gregory R., 1997. "Moving from Uniform to Variable Fertilizer Rates on Iowa Corn: Effects on Rates and Returns," Staff General Research Papers 1121, Iowa State University, Department of Economics. [Downloadable!]
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  13. 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. [Downloadable!] (restricted)
  14. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June. [Downloadable!] (restricted)
  15. Babcock, Bruce A., 2003. "Effects of Uncertainty on Optimal Nitrogen Applications (The)," Staff General Research Papers 10588, Iowa State University, Department of Economics.
  16. 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. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kimhi, Ayal & Rubin, Ofir D., 2006. "Assessing The Response Of Farm Households To Dairy Policy Reform In Israel," Discussion Papers 7134, Hebrew University of Jerusalem, Department of Agricultural Economics and Management. [Downloadable!]
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