Risk, Risk Aversion, and Agricultural Technology Adoption ─ A Novel Valuation Method Based on Real Options and Inverse Stochastic Dominance
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Open access
Date
2021Type
- Journal Article
ETH Bibliography
yes
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Abstract
Risk and risk preferences belong to the key determinants of investment-based technology adoption in agriculture. We develop and apply a novel approach in which an inverse second order stochastic dominance approach is integrated into a stochastic dynamic farm-level model to quantify the effect of both risk and risk aversion on the timing and scale of agricultural technology adoption. Our illustrative example on short rotation coppice adoption shows that risk aversion leads to technology adoption that takes place earlier, but to a smaller extent. In contrast, higher levels of risk exposure lead to postponed but overall larger adoption. These effects would be obscured if technology adoption is not analyzed in a farm-scale context or considered as a now-or-never decision, the still dominant approach in the literature. Show more
Permanent link
https://doi.org/10.3929/ethz-b-000502862Publication status
publishedExternal links
Journal / series
Q OpenVolume
Pages / Article No.
Publisher
Oxford University PressSubject
Risk preferences; farm-level investment decision; stochastic dynamic programming; inverse stochastic dominance; Perennial energy cropOrganisational unit
09564 - Finger, Robert / Finger, Robert
Related publications and datasets
Is supplemented by: http://hdl.handle.net/20.500.11850/219189
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ETH Bibliography
yes
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