IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Valuing the Option to Switch to Organic Farming: An Application to U.S. Corn and Soybeans

  • Wossink, Ada
  • Kuminoff, Nicolai V.

Based on option value theory, we develop a theoretical model to assess the dollar compensation required for the conversion to organic farming. Our empirical model is a switching regression model with two regimes and we use county level data on organic and conventional corn and soybean production in the U.S. for the application. Assuming an interest rate of 10 percent, a conventional corn-soybean grower would need to receive a one-time payment of $315 per acre to compensate for the conversion cost and an additional $1,088 per acre to cover the long run higher production and market risks. The sum of these two values equals an annual payment of $228 per acre for a 10 year contact. The results are discussed in the context of the recently introduced Conservation Security Program, which will make direct payments to US farmers for organic practices.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://purl.umn.edu/24716
Download Restriction: no

Paper provided by European Association of Agricultural Economists in its series 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark with number 24716.

as
in new window

Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:ags:eaae05:24716
Contact details of provider: Web page: http://www.eaae.orgEmail:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Lohr, Luanne & Salomonsson, Lennart, 2000. "Conversion subsidies for organic production: results from Sweden and lessons for the United States," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 22(2), March.
  2. Pfann, Gerard A., 2000. "Options to Quit," IZA Discussion Papers 197, Institute for the Study of Labor (IZA).
  3. Spiller, Pablo T & Huang, Cliff J, 1986. "On the Extent of the Market: Wholesale Gasoline in the Northeastern United States," Journal of Industrial Economics, Wiley Blackwell, vol. 35(2), pages 131-45, December.
  4. Martin Odening & Oliver Mu�hoff & Alfons Balmann, 2005. "Investment decisions in hog finishing: an application of the real options approach," Agricultural Economics, International Association of Agricultural Economists, vol. 32(1), pages 47-60, 01.
  5. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
  6. Lyubov Kurkalova & Catherine Kling & Jinhua Zhao, 2006. "Green Subsidies in Agriculture: Estimating the Adoption Costs of Conservation Tillage from Observed Behavior," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(2), pages 247-267, 06.
  7. Greene, Catherine R., 2001. "U.S. Organic Farming Emerges in the 1990s: Adoption of Certified Systems," Agricultural Information Bulletins 33777, United States Department of Agriculture, Economic Research Service.
  8. Lohr, Luanne, 2001. "The Importance Of The Conservation Security Act To Us Competitiveness In Global Organic Markets," Faculty Series 16706, University of Georgia, Department of Agricultural and Applied Economics.
  9. MacInnis, Bo, 2004. "Transaction Costs And Organic Marketing: Evidence From U.S. Organic Produce Farmers," 2004 Annual meeting, August 1-4, Denver, CO 20386, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ags:eaae05:24716. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.