Consumption risk, technology adoption and poverty traps: Evidence from Ethiopia

Abstract

a b s t r a c tMuch has been written on the determinants of technology adoption in agriculture, with issues such as input availability, knowledge and education, risk preferences, profitability, and credit constraints receiving much attention. This paper focuses on a factor that has been less well documented: the differential ability of households to take on risky production technologies for fear of the welfare consequences if shocks result in poor harvests. Building on an explicit model, this is explored in panel data from Ethiopia. Historical rainfall distributions are used to identify consumption risk. Controlling for unobserved household and time-varying village characteristics, it emerges that not just ex ante credit constraints, but also the possibly low consumption outcomes when harvests fail, discourage the application of fertilizer. The lack of insurance or alternative means of keeping consumption smooth leaves some trapped in low return, lower risk agriculture, one of the mechanisms through which poverty perpetuates itself in agrarian settings.

Climate change skepticism and index versus standard crop insurance demand in coastal Bangladesh

“…Where adaptation measures are not adopted, farmers in South Asia and Sub-Saharan Africa may face considerable production losses (Lobell et al 2008;Mathew and Akter 2015). These losses may intensify risk perceptions and limit investment in high-value or diversified crop production, thereby creating a poverty trap (Dercon and Christiaensen 2011).…”

Determinants of Adoption of Wheat Production Technology Package by Smallholder Farmers: Evidences from Eastern Ethiopia

“…Many technology adoption studies emerging in crop sub-sector revealed that the gain from adoption is not satisfactory compared to the expectations, and hence further interventions on factors impeding these are suggested (Kotu et al, 2000;Dixon et al, 2006;Dercon and Christiaensen, 2011;Asfaw et al, 2012;Shiferaw et al, 2014;Ahmed, 2015;Jaleta et al, 2016;Yigezu et al, 2015;Beshir, 2016;Hagos, 2016;Seymour et al, 2016).…”

A field experiment on the impact of weather shocks and insurance on risky investment

“…However empirical work has highlighted that an additional reason for low fertilizer use is the increased net-income risk it brings. Even controlling for other household characteristics, households that are less able to manage income risk are less likely to apply fertilizer (Dercon and Christiaensen 2010). Dercon and Christiaensen show that fertilizer returns are high when the rainfall is good and negative when the rainfall is too low or too high.…”