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Dynamics of Agricultural Technology Adoption: Age Structure, Reversibility, and Uncertainty
Author(s) -
Baerenklau Kenneth A.,
Knapp Keith C.
Publication year - 2007
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2007.00972.x
Subject(s) - investment (military) , economics , production (economics) , econometrics , agriculture , technological change , option value , variable (mathematics) , microeconomics , diffusion , vintage , capital (architecture) , value (mathematics) , relevance (law) , mathematics , macroeconomics , statistics , physics , history , ecology , mathematical analysis , archaeology , incentive , politics , political science , law , biology , thermodynamics
We develop a dynamic model of technology adoption that generalizes previous literature by incorporating technology age, reversible investment, variable inputs and outputs, and stochastic prices. The model is calibrated for irrigated cotton production in California. Optimal investment exhibits a significant vintage capital effect which provides a new candidate explanation for delayed technology diffusion. We show that the hurdle rate derived by option value models can be partially explained by the assumption of irreversible investment, and simulations demonstrate this assumption has regional policy relevance. Uncertainty affects optimal investment but has a declining effect with technology age.