| This study investigates in a Bayesian framework technology adoption behavior among domestic agricultural producers and explores policy options for increasing the diffusion rates of techniques that are thought to maintain existing levels of farm income while also improving environmental quality. Of particular interest is the observation that producers tend to become more willing to adopt an innovation with uncertain profitability when they see their peers adopting. This type of behavior is an example of a neighborhood effect—such effects have been studied in other branches of economics for decades and previous authors have suggested that they ought to play important roles in technology adoption decisions.; Estimation via maximum entropy shows that neighborhood effects, risk aversion and endogenous learning have noticeable impacts on the adoption decisions made by the sample of Wisconsin dairy farmers. In light of these results, policy simulations are used to examine two different voluntary schemes for promoting adoption of reduced-phosphorus dairy diets: green payments and green insurance. The simulations show that if the initial distribution of choices is sufficiently variable and new information spreads sufficiently rapidly, thoroughly and accurately throughout the population, then the gains from a voluntary program will be small. But when these criteria are not met, a voluntary program can produce significant, permanent changes in behavior relatively quickly and for a reasonable cost. When feasible, insurance or targeted payments appear to be the preferred mechanisms.; The main implications of this research are three-fold. First, future empirical studies of technology adoption should consider neighborhood effects: neglecting these effects when they exist could significantly impact a model's predictive ability. Second, voluntary incentive programs appear to be low-cost, politically viable mechanisms for achieving environmental goals. These mechanisms merit further research but empirical studies will require large, detailed datasets. And third, although a voluntary mechanism appears to be an attractive approach to Wisconsin's phosphorus problem, additional information is needed to determine the best course of action. Specifically, knowledge regarding the current variability of farmers' input choices and the extent of information sharing is essential to determining the best regulatory policy for the future. |
