2018, Volume 26, Paper 3
ISSN: 1883-5675

Using Returns, Risks and Learning to Understand Innovation Adoption

Thomas Jackson – Senior Economist, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

Bill Malcolm – Associate Professor, Agriculture and Food, University of Melbourne, Parkville.

(This research was undertaken while Tom Jackson was a PhD student at the University of Melbourne, 2010-2013).

Abstract

Adopting innovations is the key to improving production and productivity on farms and maintaining their long-run competitiveness and profitability. However, some innovations are adopted widely and rapidly while others are adopted slowly or not at all, and our understanding of the reasons for this remains limited. In this paper we seek to establish if explicitly accounting for the value of risk and the process of learning improves our understanding of decisions to adopt an innovation. The key finding from this case study is that an observed delay in adopting an apparently profitable innovation reflects the learning time it takes to resolve uncertainty regarding the implementation of the new technology.

Key words: investment analysis, risk, real options, Bayesian learning, innovation adoption

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