Green Subsidies in Agriculture: Estimating the Adoption Costs of Conservation Tillage from Observed Behavior (Revised)

Lyubov A. Kurkalova, Catherine L. Kling, Jinhua Zhao
April 2003  [01-WP 286] (Revised)

Because of payoff uncertainties combined with risk aversion and/or real options, farmers may demand a premium in order to adopt conservation tillage practices, over and above the compensation for the expected profit losses (if any). We propose a method of directly estimating the financial incentives for adopting conservation tillage and distinguishing between the expected payoff and premium of adoption based on observed behavior. We find that the premium may play a significant role in farmers' adoption decisions.

Keywords: adoption subsidies, Conservation Security Program (CSP), conservation tillage, risk premium.

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