Understanding the Rationale for Heterogeneous Farmers' Agricultural Technology Adoption Decisions
Job Market Candidate
Department of Agricultural & Applied Economics
University of Wisconsin - Madison
Thursday, October 4, 2018
Taylor-Hibbard Seminar Room (Rm103)
3:45 pm-5:00 pm
This paper aims to understand the rationale behind farmers’ decisions about agricultural technology adoption. I construct a farmer’s decision-making model which takes into account both the expected value and the variance of a farmer’s profit, and within it I build a farmer's production function that has three special properties: heterogeneous returns, selection bias, and heterogeneous variances for the technology adoption. Estimating the structural model with the Tanzania Living Standards Measurement Study panel dataset, I discover that the expected returns of adopting the same technology vary significantly across farmers. Furthermore, adopting fertilizer significantly increases expected yields for farmers who adopt it every year, yet the higher expected returns are accompanied by larger variances. On the other hand, intercropping does not generate additional expected returns, but leads to a significant reduction in the variance of yields. The decisions of farmers' agricultural technology adoptions are influenced by the expected value of profit positively and the variance of profit negatively. These empirical outcomes can explain the low adoption rates of an intensively promoted higher-average-return technology such as fertilizer, and justify the high adoption rates of a seemingly unprofitable technology such as intercropping.