A Real Options Framework for Analyzing Program Participation as Human Capital Investments: The Case of the Average Crop Revenue Election (ACRE) Program

We develop a real options framework to model producer participation in a subsidy program as a human capital investment to learn how the stochastic subsidy affects returns and how to adapt production activities to new program incentives, formally linking the framework to a multinomial logit specification for empirical applications. Analysis of farmer intentions for participation in the ACRE program created by the 2008 Farm Bill finds that reluctance to participate was driven largely by risk aversion and perceptions about income risk from yield and price variability, consistent with the theory that uncertainty creates an option value discouraging human capital investments.


Issue Date:
2010-08
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/92896
Total Pages:
38
JEL Codes:
Q12; Q18
Series Statement:
Staff Paper Series
547




 Record created 2017-04-01, last modified 2017-08-25

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)