SP C3: High-Value Markets, Innovation Adoption, and Uncertainty

Access to high-value markets might increase the productivity of farms in developing countries, but participation rates are still comparatively low among smallholders. The fact that decision makers are risk-averse and/or bounded rational may be one reason. Subproject C3 analyzes participation constraints, using the real options approach. Access to high-value markets regularly requires investments. For instance, in order to export horticultural commodities to Europe, farmers have to take part in appropriate certification schemes (e.g., GLOBALGAP), presupposing investments in sanitary and administrative facilities. Or, when entering into an agreement with supermarkets, farmers have to guarantee a continuous delivery, which may call for irrigation or other upgrading technologies. The investment costs are at least to some extent irreversible. In addition, the investor has to cope with uncertain returns. The consideration of temporal opportunity costs for the investment and uncertainty generates a stochastic dynamic decision problem. This is analyzed in Subproject C3, building on survey data and framed field experiments in different countries.

Doctoral researchers involved:

Doctoral researchers of the first cohort:
Hanna Ihli

Doctoral researchers of the second cohort:
Hanna Freudenreich

Doctoral researchers of the third cohort:
Martin Parlasca

Principal investigators/supervisors:
Oliver Mußhoff