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Stochastic Technology, Risk Preferences, and Adoption of Site-Specific Technologies

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  • Murat Isik
  • Madhu Khanna

Abstract

A model of farmer decision making is developed to determine the extent to which uncertainties about soil fertility and weather affect the value of site-specific technologies (SSTs) using jointly estimated risk and technology parameters. Uncertainty can lead risk-averse farmers to apply more fertilizers and generate more pollution than in the certainty case. Ignoring uncertainty and risk aversion would overestimate the economic and environmental benefits of SSTs and underestimate the subsidy required to induce adoption. Accounting for uncertainties and risk preferences might explain the low observed adoption rates of SSTs. Improving the accuracy of SSTs would increase the incentives for adoption. Copyright 2003, Oxford University Press.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:ajagec:v:85:y:2003:i:2:p:305-317
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    File URL: http://hdl.handle.net/10.1111/1467-8276.00121
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