Transformations in Agriculture and the Environment under Uncertainty
Convenors: Greg Hertzler, Tim Capon (CSIRO), Helena Clayton (ANU) and Todd Sanderson (ACIAR) Time: 9:30am welcome tea and coffee, workshop: 10:00am – 4:00pm
Workshop overview Transformations are big decisions-- adoption of the new and dis adoption of the old. Adoption and dis adoption are always uncertain.
This workshop is an interactive exploration of optimal adoption and dis adoption under uncertainty. It introduces the software ROAR (Real Options for Adoption and Resilience). Prior to the workshop, participants are encouraged to explore the RShiny app (https://real-options-adoption-resilience.shinyapps.io/GregsOUPShiny/) and become familiar with the Tutorials available under the Help menu. Participants are also encouraged to bring their own data to the workshop. The R console app and Excel versions will be available for download from GitHub.
The uncertainty of any big decision is managed by keeping your options open. The price an option is the value of flexibility to avoid losses and take gains. Optimal adoption and dis adoption compare the value of flexibility to the other benefits and costs of an investment. An optimal decision threshold is where the value of flexibility no longer exceeds the other benefits and costs. At a decision threshold, you exercise an entry option and adopt or exercise an exit option and dis adopt. This is a real options analysis.
Real option analysis can be applied to a range of research topics and applications in agriculture and the environment such as climate adaptation, the adoption of new technologies, and the resilience of agricultural and environmental systems. The ROAR software provides tools for a) estimating stochastic processes, b) calculating option values, optimal decision thresholds and the expected times to reach biophysical or decision thresholds, and c) analysing sequences of decisions, and the resilience of environmental and agricultural systems. Representative examples and case studies will be used to help participants relate their research or policy questions to the analytical framework.
Although many researchers understand the importance of option values in agriculture and the environment, they have been unable to apply real options analysis without specialised expertise. This workshop aims to make the application of real options more accessible to AARES members by providing training in the new ROAR software. This software will help support a community of practice that further develops and applies these concepts across a range of research and policy contexts.
The workshop has three overall objectives:
To help build a community of practice among applied economists and scientists.
To identify problems that researchers wish to solve and guide them in the methods and tools to solve them.
To get feedback from workshop participants to enhance the community of practice, methods of analysis, software, and documentation.
The workshop is relevant to people interested in understanding how the value of flexibility under risk and uncertainty affects the adoption of new agricultural or environmental management approaches and people interested in learning how to model and measure aspects of resilient systems. No background knowledge of real options analysis is required, although this workshop would be well-suited to people with some experience with the R statistical software or Excel. This workshop is ideal for postgraduate students who already have, or can generate, time series that represent how biophysical or economic outcomes are affected by variability in prices, temperatures, or other variables, and wish to analyse scenarios of ‘with’ versus ‘without’ some new technology or practice. For example, users of APSIM or other models can learn how to estimate option values for new agricultural methods, the likelihood of adoption, or the resilience of new approaches under alternative climate scenarios.
Workshop format and presenters The workshop will include a mix of case study presentations, demonstration of the RShiny app, introduction to the R console app and help for participants in analysing their own data.
Tim Capon will present a case study on the optimal adoption of agroforestry, and guide discussion about future applications and extensions to this analytical approach.
Greg Hertzler will present brief case studies on the resilience of kangaroos and the ecosystem services of the Southern Blue Fin tuna fishery.
Todd Sanderson will moderate the workshop and discuss potential case studies from Australasian countries.
The workshop will be roughly structured as follows:
Introduction.
Case studies.
Demonstration of the RShiny app.
Use of the RShiny app by participants. Example research questions are posed in the Tutorials of the RShiny app. A few examples are:
“What is the expected time until reaching a biophysical threshold?”
“What is the value of a new technology (e.g., drought-tolerant wheat variety) worth to a farmer even if they don’t immediately choose to adopt it?”
“What is the expected time until a decision-maker adopts a new approach?”
“How likely are they to adopt the new technology in the next 5 years?”
“Is agricultural production more resilient with this new technology?”
A guided discussion of applications of ROAR, including follow up with workshop convenors after the conference.
Brief discussion comparing the RShiny app, the R console app and Excel versions.