Applying real options theory to farmers’ afforestation decisions in Ireland

Farm afforestation is central to climate and biodiversity goals in Ireland, yet farmer uptake remains persistently low despite decades of generous government incentives. This paper investigates the drivers of reluctance through the lens of Real Options Theory, which emphasises the value of waiting under conditions of irreversibility and uncertainty. Drawing on 24 in-depth interviews with Irish farmers, the study uses thematic analysis to inductively identify how farmers frame afforestation and then deductively interprets these themes through the three pillars of the ROT: irreversibility, uncertainty and flexibility. The study demonstrates that hesitation is not a failure of rationality but its expression. Farmers consistently described afforestation as uniquely risky compared to alternative land uses, citing profound irreversibility (legal, financial, and socio-cultural), multidimensional uncertainties (policy, market, biological, and social), and the attractiveness of more flexible alternatives. Together, these conditions elevate the option value of delay, rationalising inaction despite the financial incentives on offer. Theoretically, the paper extends Real Options Theory beyond its traditional focus on price volatility to encompass institutional and socio-cultural dimensions of irreversibility and uncertainty. Methodologically, it demonstrates the value of qualitative inquiry to capture how farmers perceive and assign option value. This study contributes to land-use policy debates by integrating behavioural insights with investment-under-uncertainty theory to explain persistent barriers to afforestation adoption.