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Sequential Investment In Site-Specific Crop Management Under Output Price Uncertainty

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  • Isik, Murat
  • Khanna, Madhu
  • Winter-Nelson, Alex

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 so 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.

Suggested Citation

  • Isik, Murat & Khanna, Madhu & Winter-Nelson, Alex, 2001. "Sequential Investment In Site-Specific Crop Management Under Output Price Uncertainty," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(1), pages 1-18, July.
    • Handle: RePEc:ags:jlaare:31161
    DOI: 10.22004/ag.econ.31161
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    References listed on IDEAS

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    Cited by:

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    2. Isik, Murat, 2001. "Technology Adoption Decisions Under Uncertainty: Impacts Of Alternative Return Assumptions On Timing Of Adoption," 2001 Annual meeting, August 5-8, Chicago, IL 20658, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Ridier, Aude & Chaib, Karim & Roussy, Caroline, 2012. "The adoption of innovative cropping systems under price and production risks: a dynamic model of crop rotation choice," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122440, European Association of Agricultural Economists.
    4. Tzouramani, Irene & Mattas, Konstadinos, 2002. "Employing Real Options Methodology for Decision Making in Greenhouse Technology," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24835, European Association of Agricultural Economists.
    5. Isik, Murat & Coble, Keith H. & Hudson, Darren & House, Lisa O., 2003. "A model of entry-exit decisions and capacity choice under demand uncertainty," Agricultural Economics, Blackwell, vol. 28(3), pages 215-224, May.
    6. Twine, Edgar E. & Omore, Amos & Githinji, Julius, 2018. "Uncertainty in milk production by smallholders in Tanzania and its implications for investment," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 21(1).
    7. Tanko, Mohammed, 2022. "Nexus of risk preference, culture and religion in the adoption of improved rice varieties: Evidence from Northern Ghana," Land Use Policy, Elsevier, vol. 115(C).
    8. Murat Isik, 2004. "Incentives for Technology Adoption Under Environmental Policy Uncertainty: Implications for Green Payment Programs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 27(3), pages 247-263, March.
    9. Jackson, T.M. & Hanjra, Munir A. & Khan, S. & Hafeez, M.M., 2011. "Building a climate resilient farm: A risk based approach for understanding water, energy and emissions in irrigated agriculture," Agricultural Systems, Elsevier, vol. 104(9), pages 729-745.
    10. Hite, Diane & Hudson, Darren & Intarapapong, Walaiporn, 2002. "Willingness To Pay For Water Quality Improvements: The Case Of Precision Application Technology," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(2), pages 1-17, December.
    11. Isik, Murat & Yang, Wanhong, 2004. "An Analysis of the Effects of Uncertainty and Irreversibility on Farmer Participation in the Conservation Reserve Program," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(2), pages 1-18, August.
    12. Schimmelpfennig, David & Ebel, Robert, 2016. "Sequential Adoption and Cost Savings from Precision Agriculture," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(1), pages 1-19, January.
    13. Lavee, Doron, 2010. "The effect of water supply uncertainty on farmers' choice of crop portfolio," Agricultural Water Management, Elsevier, vol. 97(11), pages 1847-1854, November.
    14. Murat Isik, 2006. "Implications of alternative stochastic processes for investment in agricultural technologies," Applied Economics Letters, Taylor & Francis Journals, vol. 13(1), pages 21-27.
    15. Yang, Wanhong & Isik, Murat, 2003. "Integrating Farmer Decision-Making to Target Land Retirement Programs," 2003 Annual meeting, July 27-30, Montreal, Canada 22062, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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