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Social learning and parameter uncertainty in irreversible investments: Evidence from greenhouse adoption in northern China

  • Wang, Honglin
  • Yu, Fan
  • Reardon, Thomas
  • Huang, Jikun
  • Rozelle, Scott

This paper aims at an important gap in the literature, which has not modeled the effect of social learning in a real option context and examined uncertainty-reduction measures through social learning. This paper addresses the gap by modeling social learning as a way of reducing parameter uncertainty, thus facilitating technology adoption and shortening the waiting time in irreversible investments. We use household-level data on intermediate-technology greenhouse adoption in northern China to test the predictions in both a linear probability model and a duration analysis. Our empirical findings support the hypothesis. We also find that market volatility and insecure land property rights discourage adoption.

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Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 27 (2013)
Issue (Month): C ()
Pages: 104-120

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Handle: RePEc:eee:chieco:v:27:y:2013:i:c:p:104-120
Contact details of provider: Web page: http://www.elsevier.com/locate/chieco

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