Optimal adoption strategies for no-till technology in Michigan

Adjustment costs and risk aversion are hypothesized to delay adoption of no-till technology on representative corn and soybean farms in Michigan. The relevant adjustment costs include: (1) the cost of replacing the conventional planter already in use; and (2) the cost of learning how to obtain high crop yields with no till technology. Previous economic analyses of no-till adoption have not considered adjustment costs and risk aversion together. This analysis uses dynamic programming models to evaluate the effects of machinery replacement, risk aversion, a learning curve, and crop yield expectations on adoption strategies by representative profit-maximizing and risk-averse, expected utility-maximizing farmers in Michigan. Mean net revenues for the no-till technology are higher than net revenues for conventional tillage when mean crop yields are assumed to be equal for the two technologies. The estimated mean corn and soybean yields are higher for the no-till system than for conventional tillage, but the differences are not statistically significant. The representative risk-averse farmer waits until both the conventional planter and the current tractor have aged many years before adopting the no-till technology when equal mean yields and a learning curve are assumed. The representative profit-maximizing farmer replaces this machinery and adopts the no-till technology more quickly, especially when no learning curve is considered. Both representative farmers adopt the no-till technology much more quickly when the estimated mean crop yields are assumed than when equal mean crop yields are assumed. Crop price expectations also exert a large influence on the optimal adoption strategy for the risk-averse farmer. The results support efforts to promote no-till technology by demonstrating superior to yields and lowering learning costs.