Uncertainty and spatial variability: incentives for variable rate technology adoption in agriculture

Murat Isik and Madhu Khanna

Risk, Decision and Policy, 2002, vol. 7, issue 3, 249-265

Abstract: This paper develops a behavioral model of farmer decision making to analyze the incentives for adoption of a technology that provides information about spatial variability in nutrient availability and enables variable rate application of fertilizers. It examines the implications of uncertainty about the accuracy of the technology on input application and adoption decisions. Risk aversion and uncertainty can lead to the imposition of a risk premium on input use, which create incentives to over or under apply fertilizers. This influences not only the incentives to adopt the technology but also the impact of adoption on pollution. High spatial variability mitigates the disincentives for adoption even if fixed costs are high and farm size is small but the extent to which this occurs depends on the degree of risk aversion and uncertainty. These results have implications for the design and effectiveness of cost–share subsidies to induce adoption and reduce over application of fertilizers.

Date: 2002
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