Social learning and parameter uncertainty in irreversible investments: Evidence from greenhouse adoption in northern China

Article history: Received 17 September 2012 Received in revised form 12 September 2013 Accepted 14 September 2013 Available online 26 September 2013 This paper aims at an important gap in the literature, which has not modeled the effect of social learning in a real option context and examined uncertainty-reduction measures through social learning. This paper addresses the gap by modeling social learning as a way of reducing parameter uncertainty, thus facilitating technology adoption and shortening the waiting time in irreversible investments. We use household-level data on intermediate-technology greenhouse adoption in northern China to test the predictions in both a linear probability model and a duration analysis. Our empirical findings support the hypothesis. We also find that market volatility and insecure land property rights discourage adoption. © 2013 Elsevier Inc. All rights reserved. JEL classification: D83 O12 Q16