Die Bodenkultur - Journal for Land Management, Food and Environment
O. Mußhoff und N. Hirschauer:
Using the Investment Perspective as an Integrated Approach for the Investigation of Conversion Decisions between Conventional and Organic Farming in German and Austrian Farms
Farm level adaptation to a changing economic environment is often slower than expected at first sight. For instance, technological innovations are frequently adopted at a later date than the net present value of investment is insinuating.
This can be explained by the dynamic decision model of the “new investment theory” which consistently accounts for uncertainty, sunk costs and the flexibility of investment timing. Its essential conclusion is that – due to temporal opportunity costs – critical cash flows which trigger investments might be higher than those needed for simple cost recovery. Hence, an ostensible reluctance to invest (economic hysteresis) can be explained. In this paper, we demonstrate how the slow conversion to economic farming in general and how the different speed of conversion in Germany and Austria in particular can be explained by the new investment theory.
Keywords: organic farming, uncertainty, sunk cost, flexibility, new investment theory.