Transitioning to organic crop production: A dynamic programming approach

Timothy A. Delbridge, Robert P. King

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

Despite evidence that organic cropping systems in the Midwest can be more profitable than conventional systems, only a small percentage of cropland has been certified as organic. This paper models the decision to transition to organic crop production as a dynamic programming problem in which investment is reversible but includes sunk costs. Results indicate that the risk and unrecoverable costs associated with organic transition lead to a significant option value, and this provides a partial explanation for low transition rates in the baseline scenario. Sensitivity to expected organic yield and price levels is explored, as are the costliness of reverse transition and the short-term effect of high conventional return levels.

Original languageEnglish (US)
Pages (from-to)481-498
Number of pages18
JournalJournal of Agricultural and Resource Economics
Volume41
Issue number3
StatePublished - Sep 2016

Keywords

  • Dynamic programming
  • Organic farming
  • Organic transition
  • Real options

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