Adopting Bio-Energy Crops: Does Farmers Attitude toward Loss Matter?

This paper analyzes farmers’ willingness to grow a perennial energy crop (namely, miscanthus) while accounting for their attitude toward loss based on prospect theory. The analysis includes 1,877 U.S. counties east of the 100th Meridian that have data for corn yield and for miscanthus. We first estimate distributions of profits for miscanthus and conventional crops. The average probability of having a loss from growing miscanthus on high and low quality land for each county is calculated. We then study farmers’ optimal land allocation between miscanthus and conventional crops under prospect theory, and separately, under expected utility theory. Results show that all else equal, miscanthus production is lower when farmers’ loss aversion is considered than when loss aversion is ignored. Moreover, geographical configuration of miscanthus adoption predicted by prospect theory significantly differs from that predicted by expected utility theory.

Issue Date:
Jul 31 2017
Publication Type:
Conference Paper/ Presentation
Record Identifier:
Total Pages:
JEL Codes:
D81; Q15; Q16

 Record created 2017-07-31, last modified 2018-01-23

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