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Abstract

The objective of this paper is to explore the potential of the real options approach for analyzing farmers’ choice to switch from conventional to organic farming. Understanding the determinants of this decision is relevant in particular for agricultural policy makers when predicting the response of farmers to supporting programs. An econometric model is applied to aggregated data of conventional and organic farms in Germany and Austria. The empirical analysis confirms the reluctance to adopt organic farming due to option-like effects. We conclude that the incentives for an adoption of organic farming have to be increased if a higher share of this production type is desired.

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