The Energy Independence and Security Act of 2007 mandates the production of 36 billion gallons of biofuels per year by the year of 2022, including 21 billion gallons of cellulosic and advanced in addition to 15 billion gallons of conventional (corn) ethanol. It thus becomes important to know the conditions under which farmers are willing to adopt energy crop and which institutional arrangements could facilitate the adoption process.This paper uses agent based simulation to study farmers' switchgrass adoption decisions under multiple market scenarios using contracts: single-outlet (one biorefinery procures from individual farmers), quasi-multiple outlets (one biorefinery procures from farmers' cooperative) and multiple outlets (several easily accessible market outlets procure switchgrass from individual farmers). The focus of this paper is to model the contract hold-up problem and its influence on farmers' switchgrass adoption decisions under the three market scenarios. The use of an agent based model makes it possible to take multi-level heterogeneity into consideration. We found that the appearance of an alternative market outlet lowers farmers' perceived risk and drives up their expected switchgrass growing gross margin, leading to a higher switchgrass adoption rate. It is also found that procuring from a farmers' cooperative is an efficient and feasible arrangement. However, commercial operation of a large-scale biorefinery is still not quite feasible in this particular region.
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