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Sequential Investment In Site-Specific Crop Management Under Output Price Uncertainty: Implications For Nitrogen Pollution Control

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

Abstract

This paper develops an option value model to examine the extent to which output price uncertainty creates incentives to adopt two interrelated components of site-specific technologies sequentially. It analyzes how the impact of uncertainty on the sequential adoption decision differs across heterogeneous soil conditions, and examines the implications of adoption for nitrogen pollution generation and for the design of a cost-share subsidy policy.

Suggested Citation

  • Isik, Murat & Khanna, Madhu & Winter-Nelson, Alex, 2000. "Sequential Investment In Site-Specific Crop Management Under Output Price Uncertainty: Implications For Nitrogen Pollution Control," 2000 Annual meeting, July 30-August 2, Tampa, FL 21875, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea00:21875
    DOI: 10.22004/ag.econ.21875
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    References listed on IDEAS

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    1. Isik, Murat & Khanna, Madhu & Winter-Nelson, Alex, 1999. "Investment In Site Specific Crop Management Under Uncertainty," 1999 Annual meeting, August 8-11, Nashville, TN 21684, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Price, T. Jeffrey & Wetzstein, Michael E., 1999. "Irreversible Investment Decisions In Perennial Crops With Yield And Price Uncertainty," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(1), pages 1-13, July.
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    6. Howard D. Leathers & Melinda Smale, 1991. "A Bayesian Approach to Explaining Sequential Adoption of Components of a Technological Package," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 734-742.
    7. Bar-Ilan, Avner & Strange, William C., 1998. "A model of sequential investment," Journal of Economic Dynamics and Control, Elsevier, vol. 22(3), pages 437-463, March.
    8. Babcock, Bruce A. & Pautsch, Gregory R., 1998. "Moving From Uniform To Variable Fertilizer Rates On Iowa Corn: Effects On Rates And Returns," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(2), pages 1-16, December.
    9. Khanna, Madhu & Isik, Murat & Winter-Nelson, Alex, 2000. "Investment in site-specific crop management under uncertainty: implications for nitrogen pollution control and environmental policy," Agricultural Economics, Blackwell, vol. 24(1), pages 9-21, December.
    10. Ray, Daryll E. & Richardson, James W. & Torre Ugarte, Daniel de la & Tiller, Kelly, 1998. "Estimating Price Variability In Agriculture: Implications For Decision Makers," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 30(1), pages 1-13, July.
    11. repec:ags:joaaec:v:30:y:1998:i:1:p:21-33 is not listed on IDEAS
    12. Gary Kachanoski, 1999. "Economic Feasibility of Variable-Rate Technology for Nitrogen on Corn," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 914-927.
    13. Watkins, K. Bradley & Lu, Yao-Chi & Huang, Wen-Yuan, 1998. "Economic And Environmental Feasibility Of Variable Rate Nitrogen Fertilizer Application With Carry-Over Effects," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(2), pages 1-26, December.
    14. Gershon Feder, 1982. "Adoption of Interrelated Agricultural Innovations: Complementarity and the Impacts of Risk, Scale, and Credit," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(1), pages 94-101.
    15. Qi Dai & Jerald J. Fletcher & John G. Lee, 1993. "Incorporating Stochastic Variables in Crop Response Models: Implications for Fertilization Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 377-386.
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    Cited by:

    1. Löfgren, Åsa & Millock, Katrin & Nauges, Céline, 2008. "The effect of uncertainty on pollution abatement investments: Measuring hurdle rates for Swedish industry," Resource and Energy Economics, Elsevier, vol. 30(4), pages 475-491, December.
    2. Hyun Seok Kim & B. Wade Brorsen, 2012. "Can real option values explain apparent storage at a loss?," Applied Economics, Taylor & Francis Journals, vol. 44(16), pages 2081-2090, June.
    3. 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.
    4. Chen, Le & Rejesus, Roderick M. & Brown, Zachary S. & Boyer, Christopher M. & Larson, James A., 2020. "Adoption of Cover Crops under Uncertainty: A Real Options Method," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304391, Agricultural and Applied Economics Association.

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