Switching from Conventional to Organic Farming – a Real Options Perspective
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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.