Agricultural Economics Department

 

Date of this Version

5-2011

Citation

Published in Agricultural Economics (2014), Article first published online : 1 APR 2014, DOI: 10.1111/agec.12118

Comments

White paper; issued May 31, 2011; revised July 2012; further revision June 2013.

Abstract

The paper examines whether a firm is more or less likely to adopt conservation technology when input prices are stochastic. The results are critical to determining whether programs and contracts that reduce input price uncertainty may deter the adoption of conservation practices. An economic model of the technology adoption decision shows that the net effect of input price risk is ambiguous and depends on several factors: the mean price effect, the shutdown effect, and the risk aversion effect. Results are estimated using water price and irrigation technology adoption data. The results show that a stable input price increases the adoption of conservation technology, but the impact depends on crop choice and land quality characteristics.