Stochastic technology, risk preferences, and adoption of site-specific technologies

Murat Isik; Madhu Khanna

doi:10.1111/1467-8276.00121

Stochastic technology, risk preferences, and adoption of site-specific technologies

Research output: Contribution to journal › Article › peer-review

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.

Original language	English (US)
Pages (from-to)	305-317
Number of pages	13
Journal	American Journal of Agricultural Economics
Volume	85
Issue number	2
DOIs	https://doi.org/10.1111/1467-8276.00121
State	Published - May 2003

Keywords

Nitrogen runoff
Risk preferences
Spatial variability
Technology adoption
Uncertainty

ASJC Scopus subject areas

Agricultural and Biological Sciences (miscellaneous)
Economics and Econometrics

Online availability

10.1111/1467-8276.00121

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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.",

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AU - Isik, Murat

AU - Khanna, Madhu

N1 - Funding Information: The authors thank two anonymous reviewers for their helpful comments and suggestions. Madhu Khanna also acknowledges support from the Illinois Council on Food and Agricultural Research and the Cooperative State Research, Education and Extension Service, U.S. Department of Agriculture, under project No. ILLU-05-0305.

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N2 - 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.

AB - 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.

KW - Nitrogen runoff

KW - Risk preferences

KW - Spatial variability

KW - Technology adoption

KW - Uncertainty

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Stochastic technology, risk preferences, and adoption of site-specific technologies

Abstract

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