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

Publié le 04 janvier 2023

Par Camille Tevenart, Marc Baudry et Edouard Civel.

Uniquement disponible en anglais.

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 favourable to environmental protection and mitigation or adaptation to climate change. This article focuses on how irreversibility premium and risk premium can combine to refrain adoption. 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 Miscanthus in France that irreversibility and risk premiums of prima facie low magnitude can strongly curb the adoption and diffusion of an innovative practice.

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