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Risk, uncertainty and pasture investment decisions

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  • Jackson, Thomas
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    Abstract

    The private decisions of farmers to invest in new technologies interest economists because these decisions influence the rate of farm productivity growth and the returns to public investment in agricultural research and development. Economic analysis of decisions to invest in new technologies on farms involves considering the effects of these decisions on the profitability and risk of the farm business. This is done routinely using whole-farm economic models and techniques such as stochastic simulation. Such analysis can be used to predict the extent to which a technology is likely to be adopted in equilibrium, when the consequences of adoption are known to all potential adopters. Until this equilibrium is reached, however, potential adopters of new technologies face uncertainty about the consequences of adoption. This alters expectations about the effects on profitability and risk of adoption, and hence alters investment decisions. The resolution of uncertainty over time through learning is therefore a key determinant of the rate at which new technologies are adopted, and hence should be represented in dynamic economic models which seek to explain these decisions.

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    File URL: http://purl.umn.edu/100566
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    Bibliographic Info

    Paper provided by Australian Agricultural and Resource Economics Society in its series 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia with number 100566.

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    Date of creation: 2011
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    Handle: RePEc:ags:aare11:100566

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    Keywords: Farm Management;

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    1. Abadi Ghadim, Amir K. & Pannell, David J., 1999. "A conceptual framework of adoption of an agricultural innovation," Agricultural Economics, Blackwell, vol. 21(2), pages 145-154, October.
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