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Adoption of organic farming in Germany and Austria: an integrative dynamic investment perspective


  • Oliver Musshoff
  • Norbert Hirschauer


Farm-level adaptation to changing economic environments is often slower than expected. Technological innovations, for instance, are frequently adopted at a later date than the net present value of investment suggests. This can be explained by a model of "investment under uncertainty," which consistently accounts for uncertainty, sunk costs, and the flexibility of investment timing. Its essential conclusion is that, due to temporal opportunity costs, critical incremental cash flows that trigger investments might be higher than those needed for simple cost recovery. This accounts for an ostensible reluctance to invest (economic hysteresis). In this article, we demonstrate how slow conversion to organic farming in general, and the different rates of conversion in Germany and Austria in particular, can be explained by the new investment theory. Copyright (c) 2008 International Association of Agricultural Economists.

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  • Oliver Musshoff & Norbert Hirschauer, 2008. "Adoption of organic farming in Germany and Austria: an integrative dynamic investment perspective," Agricultural Economics, International Association of Agricultural Economists, vol. 39(1), pages 135-145, July.
  • Handle: RePEc:bla:agecon:v:39:y:2008:i:1:p:135-145

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    References listed on IDEAS

    1. Kuminoff, Nicolai V. & Wossink, Ada, 2005. "Valuing the Option to Convert from Conventional to Organic Farming," 2005 Annual meeting, July 24-27, Providence, RI 19531, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Ehmke, Mariah D. & Golub, Alla A. & Harbor, Anetra L. & Boehlje, Michael, 2004. "Real Options Analysis For Investment In Organic Wheat And Barley Production In South Central North Dakota Using Precision Agriculture Technology," 2004 Annual meeting, August 1-4, Denver, CO 20346, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Marchant, Mary A. & Murrell, Courtney Paige & Zhuang, Jun, 2004. "Investment Analysis Of Replacing Endophyte-Infected With Endophyte-Free Tall Fescue Pastures," 2004 Annual Meeting, February 14-18, 2004, Tulsa, Oklahoma 34630, Southern Agricultural Economics Association.
    4. Alfons Balmann, Oliver Musshoff, 2001. "Studying Real Options with Genetic Algorithms," Computing in Economics and Finance 2001 149, Society for Computational Economics.
    5. Greene, Catherine R. & Kremen, Amy, 2003. "U.S. Organic Farming In 2000-2001: Adoption Of Certified Systems," Agricultural Information Bulletins 33769, United States Department of Agriculture, Economic Research Service.
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    Cited by:

    1. Zein Kallas & Teresa Serra & José Maria Gil, 2010. "Farmers' objectives as determinants of organic farming adoption: the case of Catalonian vineyard production," Agricultural Economics, International Association of Agricultural Economists, vol. 41(5), pages 409-423, September.
    2. Heyder, Matthias & Theuvsen, Ludwig & Hollmann-Hespos, Thorsten, 2012. "Investments in tracking and tracing systems in the food industry: A PLS analysis," Food Policy, Elsevier, vol. 37(1), pages 102-113.
    3. Mzoughi, Naoufel, 2011. "Farmers adoption of integrated crop protection and organic farming: Do moral and social concerns matter?," Ecological Economics, Elsevier, vol. 70(8), pages 1536-1545, June.
    4. Oliver Musshoff & Norbert Hirschauer, 2008. "Investment planning under uncertainty and flexibility: the case of a purchasable sales contract ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(1), pages 17-36, March.
    5. Ihli, Hanna Julia & Maart, Syster Christin & Musshoff, Oliver, 2012. "Investment and Disinvestment in Irrigation Technology – An Experimental Analysis of Farmers’ Decision Behavior –," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124532, Agricultural and Applied Economics Association.
    6. Laepple, Doris & Kelley, Hugh, 2014. "Spatial dependence in the adoption of organic drystock farming in Ireland," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182759, European Association of Agricultural Economists.
    7. Lakner, Sebastian & Breustedt, Gunnar, 2015. "Efficiency analysis of organic farming systems- a review of methods, topics, results, and conclusions," 2015 Conference, August 9-14, 2015, Milan, Italy 212025, International Association of Agricultural Economists.
    8. Mzoughi, Naoufel, 2014. "Do organic farmers feel happier than conventional ones? An exploratory analysis," Ecological Economics, Elsevier, vol. 103(C), pages 38-43.
    9. Wollni, Meike & Andersson, Camilla, 2014. "Spatial patterns of organic agriculture adoption: Evidence from Honduras," Ecological Economics, Elsevier, vol. 97(C), pages 120-128.
    10. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Understanding the Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150331, Agricultural and Applied Economics Association.
    11. Tzouramani, Irene & Sintori, Alexandra & Liontakis, Angelos E. & Alexopoulos, George, 2010. "Assessing agricultural policy incentives for Greek organic agriculture: A Real options approach," 114th Seminar, April 15-16, 2010, Berlin, Germany 61096, European Association of Agricultural Economists.
    12. Heinrich, Barbara & Hernandez Villafuerte, Karla & Wurriehausen, Nadine & Lakner, Sebastian, "undated". "Ursachen Für Und Räumliche Bestimmungsgrün-De Von Länderunterschieden Im Ökologischen Landbau Weltweit: Theoretische Überlegungen Und Erste Ökonometrische Analysen," 54th Annual Conference, Goettingen, Germany, September 17-19, 2014 187379, German Association of Agricultural Economists (GEWISOLA).
    13. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," Discussion Papers 154775, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    14. Lakner, Sebastian, 2009. "Technical efficiency of organic milk-farms in Germany - the role of subsidies and of regional factors," 2009 Conference, August 16-22, 2009, Beijing, China 51301, International Association of Agricultural Economists.
    15. Nicolai V. Kuminoff & Ada Wossink, 2010. "Why Isn't More US Farmland Organic?," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 240-258.
    16. Andoseh, Stephen & Bahn, Rachel & Gu, Jenny, 2014. "The case for a real options approach to ex-ante cost-benefit analyses of agricultural research projects," Food Policy, Elsevier, vol. 44(C), pages 218-226.

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