Incentives for technology adoption under environmental policy uncertainty: Implications for green payment programs

TitleIncentives for technology adoption under environmental policy uncertainty: Implications for green payment programs
Publication TypeJournal Article
Year of Publication2004
AuthorsIsik, M
JournalEnvironmental & Resource Economics
Volume27
Issue3
Pagination247-263
Date PublishedMar
ISBN Number0924-6460
Keywordscost-share subsidy, INVESTMENT, policy uncertainty, real options, site-specific, TECHNOLOGIES
Abstract

Water quality protection policy in the United States has been based on the provision of financial incentives to farmers for adopting improved nutrient management practices. Increasing reliance on subsidy programs could result in expectations for such programs in the future. Using an option-value model that indicates uncertainty can lead to a delay in investment, this paper analyzes the extent to which uncertainty about cost-share subsidy policies would impact adoption decision. Application of the model to adoption of site-specific technologies indicates that uncertainty about subsidy policies has the potential to impact the investment decision. When there is currently no cost-share subsidy, an increase in the probability of an expected policy delays adoption. If the policy is in effect, an increase in the probability of a withdrawal of the program encourages investment. Cost-share subsidy policy is most effective when it is immediately offered and guaranteed that it will be removed soon.

DOI10.1023/B:EARE.0000017624.07757.3f