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

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  • Oliver Musshoff
  • Norbert Hirschauer

Abstract

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.

Suggested Citation

  • 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
    DOI: 10.1111/j.1574-0862.2008.00321.x
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    1. 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.
    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. 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).
    5. Alfons Balmann, Oliver Musshoff, 2001. "Studying Real Options with Genetic Algorithms," Computing in Economics and Finance 2001 149, Society for Computational Economics.
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