Technology Adoption Decisions under Irreversibility and Uncertainty: An <i>Ex Ante</i> Appproach

Abstract

Abstract Empirical results demonstrate that uncertainty about costs and requirements for environmental compliance is an important determinant of dairy producers… investment behavior. Ex ante forecasting of how uncertainty and irreversibility are likely to affect producers… responsiveness to agricultural technologies has implications for the design of environmental policies. Simulation modeling methods are described. The empirical analysis focuses on Texas producers… propensity to adopt free‐stall dairy housing. Free‐stall investments offer advantages for both productivity‐augmentation and pollution abatement, yet uncertainty and irreversibility are obstacles to adoption. Implications of this ex ante paradigm for policy design and implementation are discussed.