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Land allocation and the adoption of innovative practices in agriculture: a real option modelling of the underlying hidden costs

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  • Marc Baudry

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Edouard Civel

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Camille Tévenart

Abstract

The agricultural sector is faced with barriers to the adoption and dissemination of innovative practices that cannot be properly captured by the standard financial analysis of their profitability. These barriers can be particularly detrimental to the shift towards practices favorable to environmental protection and mitigation or adaptation to climate change. This article focuses on how different "hidden" costs of adoption can combine, including risk aversion, uncertainty and irreversibility. It emphasizes the particular context of agriculture, in particular the role of land allocation choices which make it possible to modulate the uncertain and potentially irreversible consequences of adoption by a particular type of hedging. It is highlighted from a numerical simulation on the case of Myscanthus in France that "hidden" costs of prima facie low magnitude can strongly curb the adoption and diffusion of an innovative practice.

Suggested Citation

  • Marc Baudry & Edouard Civel & Camille Tévenart, 2023. "Land allocation and the adoption of innovative practices in agriculture: a real option modelling of the underlying hidden costs," Working Papers hal-04159839, HAL.
    • Handle: RePEc:hal:wpaper:hal-04159839
    Note: View the original document on HAL open archive server: https://hal.science/hal-04159839
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    More about this item

    Keywords

    Technology diffusion; Uncertainty; Irreversibility; Land allocation;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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