Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Real Options Framework for Analyzing Program Participation as Human Capital Investments: The Case of the Average Crop Revenue Election (ACRE) Program

Contents:

Author Info

  • Mitchell, Paul D.

    (University of Wisconsin Madison)

  • Rejesus, Roderick M.

    (NC State University)

  • Coble, Keith H.

    (Mississippi State University)

  • Knight, Thomas O.

    (Texas Tech University)

Abstract

We develop a real options framework to model producer participation in a subsidy program as a human capital investment to learn how the stochastic subsidy affects returns and how to adapt production activities to new program incentives, formally linking the framework to a multinomial logit specification for empirical applications. Analysis of farmer intentions for participation in the ACRE program created by the 2008 Farm Bill finds that reluctance to participate was driven largely by risk aversion and perceptions about income risk from yield and price variability, consistent with the theory that uncertainty creates an option value discouraging human capital investments.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.aae.wisc.edu/pubs/sps/pdf/stpap547.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Wisconsin, Agricultural and Applied Economics in its series Staff Paper Series with number 547.

as in new window
Length:
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:ecl:wisagr:547

Contact details of provider:
Postal: 427 Lorch Street, Madison, WI 53706-1503
Phone: 608-262-8966
Fax: 608-262-4376
Email:
Web page: http://www.aae.wisc.edu/pubs/sps/
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Janis M. Carey & David Zilberman, 2002. "A Model of Investment under Uncertainty: Modern Irrigation Technology and Emerging Markets in Water," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 84(1), pages 171-183.
  2. Bhaskar, Arathi & Beghin, John C., 2007. "How Coupled Are Decoupled Farm Payments? A Review of the Evidence," Staff General Research Papers 12841, Iowa State University, Department of Economics.
  3. David A. Hennessy, 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 80(1), pages 46-57.
  4. Isik, Murat & Khanna, Madhu, 2002. "Stochastic Technology, Risk Preferences And Adoption Of Site-Specific Technologies," 2002 Annual meeting, July 28-31, Long Beach, CA, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 19858, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Bruce J. Sherrick & Peter J. Barry & Paul N. Ellinger & Gary D. Schnitkey, 2004. "Factors Influencing Farmers' Crop Insurance Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 86(1), pages 103-114.
  6. Nicolai V. Kuminoff & Ada Wossink, 2010. "Why Isn't More US Farmland Organic?," Journal of Agricultural Economics, Wiley Blackwell, Wiley Blackwell, vol. 61(2), pages 240-258.
  7. Kenneth A. Baerenklau & Keith C. Knapp, 2007. "Dynamics of Agricultural Technology Adoption: Age Structure, Reversibility, and Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 89(1), pages 190-201.
  8. Fabienne Femenia & Alexandre Gohin & Alain Carpentier, 2010. "The Decoupling of Farm Programs: Revisiting the Wealth Effect," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 92(3), pages 836-848.
  9. Bhaskar, Arathi & Beghin, John C., 2007. "Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty," Staff General Research Papers 12851, Iowa State University, Department of Economics.
  10. Olson, Kent D. & DalSanto, Matthew R., 2008. "Provisions and Potential Impacts of the Average Crop Revenue Election (ACRE) Program," Staff Papers, University of Minnesota, Department of Applied Economics 42980, University of Minnesota, Department of Applied Economics.
  11. Teresa Serra & David Zilberman & Barry K. Goodwin & Allen Featherstone, 2006. "Effects of decoupling on the mean and variability of output," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 33(3), pages 269-288, September.
  12. Keith D. Brouthers & Lance Eliot Brouthers & Steve Werner, 2008. "Real Options, International Entry Mode Choice and Performance," Journal of Management Studies, Wiley Blackwell, Wiley Blackwell, vol. 45(5), pages 936-960, 07.
  13. Jean-Daniel M. Saphores, 2000. "The Economic Threshold with a Stochastic Pest Population: A Real Options Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 82(3), pages 541-555.
  14. Sangtaek Seo & Eduardo Segarra & Paul D. Mitchell & David J. Leatham, 2008. "Irrigation technology adoption and its implication for water conservation in the Texas High Plains: a real options approach," Agricultural Economics, International Association of Agricultural Economists, vol. 38(1), pages 47-55, 01.
  15. Jacobs, Bas, 2007. "Real options and human capital investment," Labour Economics, Elsevier, Elsevier, vol. 14(6), pages 913-925, December.
  16. Woolverton, Andrea E. & Edwin, Young, 2009. "Factors Influencing ACRE Program Enrollment," Economic Research Report, United States Department of Agriculture, Economic Research Service 55954, United States Department of Agriculture, Economic Research Service.
  17. Bruce Gardner & Ian Hardie & Peter J. Parks, 2010. "United States Farm Commodity Programs and Land Use," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 92(3), pages 803-820.
  18. Isik, Murat & Yang, Wanhong, 2004. "An Analysis of the Effects of Uncertainty and Irreversibility on Farmer Participation in the Conservation Reserve Program," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 29(02), August.
  19. Patrick, George F. & Peiter, Amy J. & Knight, Thomas O. & Coble, Keith H. & Baquet, Alan E., 2007. "Hog Producers' Risk Management Attitudes and Desire for Additional Risk Management Education," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, Southern Agricultural Economics Association, vol. 39(03), December.
  20. Christopher R. McIntosh & Jason F. Shogren & Erik Dohlman, 2007. "Supply Response to Countercyclical Payments and Base Acre Updating under Uncertainty: An Experimental Study," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 89(4), pages 1046-1057.
  21. Bruce A. Babcock, 2010. "Costs and Benefits of Moving to a County ACRE Program," Center for Agricultural and Rural Development (CARD) Publications 10-pb2, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  22. Price, T. Jeffrey & Wetzstein, Michael E., 1999. "Irreversible Investment Decisions In Perennial Crops With Yield And Price Uncertainty," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 24(01), July.
  23. Velandia, Margarita M. & Rejesus, Roderick M. & Knight, Thomas O. & Sherrick, Bruce J., 2009. "Factors Affecting Farmers’ Utilization of Agricultural Risk Management Tools: The Case of Crop Insurance, Forward Contracting, and Spreading Sales," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, Southern Agricultural Economics Association, vol. 41(01), April.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ecl:wisagr:547. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.