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Der Wechsel vom konventionellen zum ökologischen Landbau: Eine investitionstheoretische Betrachtung

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  • Odening, Martin
  • Musshoff, Oliver
  • Utesch, Volker

Abstract

The objective of this paper is to explore the potential of the real options approach for analyzing farmers’ choice to switch from conventional to organic farming. Understanding the determinants of this decision is relevant in particular for agricultural policy makers when predicting the response of farmers to support programs. After a brief review of the existing literature on barriers to the adoption of organic farming a theoretical model is presented that allows one to incorporate two main features of the adoption decision, namely irreversibility and uncertainty of the returns. The real options model quantifies investment multiples that trigger the adoption of organic farming. Compared with neoclassical models it suggests an inertia of the respective farming type, i.e. economic hysteresis. In order to find some empirical evidence for that hypothesis we utilize a switching regression model has originally been developed to test for market integration. The econometric model is then applied to aggregated data of conventional and organic farms in Germany and Austria spanning the period from 1982 until 2002. The empirical analysis confirms the reluctance to adopt organic farming due to option-like effects. We conclude that the incentives for adoption of organic farming (e.g. higher prices, direct payments or income stabilization) have to be increased if a higher share of this production type seems desirable.

Suggested Citation

  • Odening, Martin & Musshoff, Oliver & Utesch, Volker, 2004. "Der Wechsel vom konventionellen zum ökologischen Landbau: Eine investitionstheoretische Betrachtung," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 53(06), pages 1-10.
    • Handle: RePEc:ags:gjagec:97451
    DOI: 10.22004/ag.econ.97451
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    References listed on IDEAS

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    1. Odening, Martin & Musshoff, Oliver & Huettel, Silke, 2003. "Empirische Validierung von Realoptionsmodellen," Working Paper Series 18825, Humboldt University Berlin, Department of Agricultural Economics.
    2. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
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    5. Lander, Diane M. & Pinches, George E., 1998. "Challenges to the Practical Implementation of Modeling and Valuing Real Options," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 537-567.
    6. Bill Provencher, 1997. "Structural Versus Reduced-Form Estimation of Optimal Stopping Problems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 357-368.
    7. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    8. KS Pietola & AO Lansink, 2001. "Farmer response to policies promoting organic farming technologies in Finland," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 28(1), pages 1-15, March.
    9. Bryant, Amy & Richards, Timothy J., 1998. "Hysteresis And The Shortage Of Agricultural Labor," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20858, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    Cited by:

    1. Christian Schader & Jürn Sanders & Thomas Nemecek & Nic Lampkin & Matthias Stolze, 2008. "A Modelling Approach for Evaluating Agri-Environmental Policies at Sector Level," Journal of Socio-Economics in Agriculture (Until 2015: Yearbook of Socioeconomics in Agriculture), Swiss Society for Agricultural Economics and Rural Sociology, vol. 1(1), pages 93-132.
    2. Sandri, Serena & Schade, Christian & Mußhoff, Oliver & Odening, Martin, 2010. "Holding on for too long? An experimental study on inertia in entrepreneurs' and non-entrepreneurs' disinvestment choices," Journal of Economic Behavior & Organization, Elsevier, vol. 76(1), pages 30-44, October.
    3. Nicolai V. Kuminoff & Ada Wossink, 2010. "Why Isn’t More US Farmland Organic?," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 240-258, June.

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