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

Marc Baudry, Edouard Civel and Camille Tévenart

No 2023-1, EconomiX Working Papers from University of Paris Nanterre, EconomiX

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.

Keywords: Technology diffusion; Uncertainty, Irreversibility, Land allocation (search for similar items in EconPapers)
JEL-codes: D83 O33 Q16 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2023
New Economics Papers: this item is included in nep-agr and nep-env
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Working Paper: Land allocation and the adoption of innovative practices in agriculture: a real option modelling of the underlying hidden costs (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2023-1

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