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Adopting bioenergy crops: Does farmers’ attitude toward loss matter?

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  • Mohit Anand
  • Ruiqing Miao
  • Madhu Khanna

Abstract

We apply prospect theory to examining farmers’ economic incentives to divert a share of their land to bioenergy crops (miscanthus and switchgrass in this study). Numerical simulation is conducted for 1,919 rain‐fed U.S. counties to identify the impact of loss aversion on bioenergy crop adoption, and how this impact is influenced by biomass price, discount rate, credit constraint status, and policy instruments. Results show that ignoring farmer's loss aversion causes overestimation of miscanthus production but underestimation of switchgrass production, particularly when farmers are credit constrained and have a high discount rate. We find that establishment cost subsidy induces more miscanthus production whereas subsidized energy crop insurance induces more switchgrass production. The efficacy of these two policy instruments, measured by biomass production increased by per dollar of government outlay, depends on the magnitude of farmers’ loss aversion and discount rate.

Suggested Citation

  • Mohit Anand & Ruiqing Miao & Madhu Khanna, 2019. "Adopting bioenergy crops: Does farmers’ attitude toward loss matter?," Agricultural Economics, International Association of Agricultural Economists, vol. 50(4), pages 435-450, July.
    • Handle: RePEc:bla:agecon:v:50:y:2019:i:4:p:435-450
    DOI: 10.1111/agec.12501
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    Cited by:

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    2. Alexis H. Villacis & Jeffrey R. Alwang & Victor Barrera, 2021. "Linking risk preferences and risk perceptions of climate change: A prospect theory approach," Agricultural Economics, International Association of Agricultural Economists, vol. 52(5), pages 863-877, September.
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    5. Burli, Pralhad & Lal, Pankaj & Wolde, Bernabas & Jose, Shibu & Bardhan, Sougata, 2021. "Perceptions about switchgrass and land allocation decisions: Evidence from a farmer survey in Missouri," Land Use Policy, Elsevier, vol. 109(C).
    6. Sant’Anna, Ana Claudia & Bergtold, Jason S. & Shanoyan, Aleksan & Caldas, Marcellus M. & Granco, Gabriel, 2022. "Biofuel feedstock contract attributes, substitutability and tradeoffs in sugarcane production for ethanol in the Brazilian Cerrado: A stated choice approach," Renewable Energy, Elsevier, vol. 185(C), pages 665-679.
    7. Deepayan Debnath & Madhu Khanna & Deepak Rajagopal & David Zilberman, 2019. "The Future of Biofuels in an Electrifying Global Transportation Sector: Imperative, Prospects and Challenges," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 41(4), pages 563-582, December.
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