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Incentives for Technology Adoption Under Environmental Policy Uncertainty: Implications for Green Payment Programs

  • Murat Isik

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    Water quality protection policy in the UnitedStates has been based on the provision offinancial incentives to farmers for adoptingimproved nutrient management practices.Increasing reliance on subsidy programs couldresult in expectations for such programs in thefuture. Using an option-value model thatindicates uncertainty can lead to a delay ininvestment, this paper analyzes the extent towhich uncertainty about cost-share subsidypolicies would impact adoption decision.Application of the model to adoption ofsite-specific technologies indicates thatuncertainty about subsidy policies has thepotential to impact the investment decision.When there is currently no cost-share subsidy,an increase in the probability of an expectedpolicy delays adoption. If the policy is ineffect, an increase in the probability of awithdrawal of the program encouragesinvestment. Cost-share subsidy policy is mosteffective when it is immediately offered andguaranteed that it will be removed soon. Copyright Kluwer Academic Publishers 2004

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    File URL: http://hdl.handle.net/10.1023/B:EARE.0000017624.07757.3f
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    Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

    Volume (Year): 27 (2004)
    Issue (Month): 3 (March)
    Pages: 247-263

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    Handle: RePEc:kap:enreec:v:27:y:2004:i:3:p:247-263
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100263

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    1. Ribaudo, Marc & Horan, Richard D. & Smith, Mark E., 1999. "Economics of Water Quality Protection from Nonpoint Sources: Theory and Practice," Agricultural Economics Reports 33913, United States Department of Agriculture, Economic Research Service.
    2. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
    3. Isik, Murat & Khanna, Madhu, 2002. "Variable-Rate Nitrogen Application Under Uncertainty: Implications For Profitability And Nitrogen Use," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(01), July.
    4. Alex Winter-Nelson & Koffi Amegbeto, 1998. "Option Values to Conservation and Agricultural Price Policy: Application to Terrace Construction in Kenya," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 409-418.
    5. Babcock, Bruce A. & Pautsch, Gregory R., 1998. "Moving from Uniform to Variable Fertilizer Rates on Iowa Corn: Effects on Rates and Returns," Staff General Research Papers 1121, Iowa State University, Department of Economics.
    6. Kevin A. Hassett & Gilbert E. Metcalf, 1998. "Investment With Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," Discussion Papers Series, Department of Economics, Tufts University 9823, Department of Economics, Tufts University.
    7. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
    8. Murat Isik & Madhu Khanna, 2003. "Stochastic Technology, Risk Preferences, and Adoption of Site-Specific Technologies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(2), pages 305-317.
    9. Isik, Murat & Khanna, Madhu & Winter-Nelson, Alex, 2001. "Sequential Investment In Site-Specific Crop Management Under Output Price Uncertainty," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(01), July.
    10. Janis M. Carey & David Zilberman, 2002. "A Model of Investment under Uncertainty: Modern Irrigation Technology and Emerging Markets in Water," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 171-183.
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