Abstract

An option-value model is developed to analyze the impacts of output price uncertainty, high sunk costs of adoption, and site-specific conditions on the optimal timing of adoption of two interrelated site-specific technologies, soil testing and variable rate technology (VRT). The model incorporates the potential for adopting these two technologies jointly or sequentially. The implications of the pattern of adoption for nitrogen pollution and for the design of a cost-share subsidy policy to accelerate the adoption of these technologies to reduce nitrogen pollution are also analyzed. Ignoring the potential for sequential adoption would tend to underpredict the adoption of soil testing and overpredict the adoption of VRT. Cost-share subsidies to induce accelerated adoption of VRT would be most effective at reducing nitrogen pollution if targeted toward fields with relatively high spatial variability in soil quality or soil fertility, and either low average soil quality or low average soil fertility.

Original languageEnglish (US)
Pages (from-to)212-229
Number of pages18
JournalJournal of Agricultural and Resource Economics
Volume26
Issue number1
StatePublished - Jul 1 2001

Keywords

  • Agricultural technologies
  • Cost-share subsidy
  • Nitrogen pollution
  • Option value
  • Price uncertainty
  • Spatial variability

ASJC Scopus subject areas

  • Animal Science and Zoology
  • Agronomy and Crop Science
  • Economics and Econometrics

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