The Distribution of New Wheat Varieties in the Pakistan Punjab: The Role and Functioning of Institutions

This case study concerns the technology choice of farmers in the Pakistan Punjab with regard to wheat varieties. It argues that profitability of new crop technologies can only partly explain their adoption, as access to inputs limits the choice of farmers. In Pakistan, access to inputs is limited due to market structures and associated institutional factors. In applied microeconomics, technology choice is commonly estimated with the use of adoption models: the (expected) profitability of prevailing and the new technologies are compared, and it is assumed that the farmers opt for the most profitable one (taking account of risk aversion and incomplete information). A simplification often made is to assume that everyone has unlimited access to all relevant goods and services. In this paper the latter assumption is tested. More specifically, the paper is concerned with the consequences of limits due to the organisational infrastructure of markets. A so-called "bivariate probit model with partial observability" is applied in order to estimate adoption behaviour. Such a model makes it possible to distinguish two classes of explanatory variables; in this case one with variables concerning profitability and one with variables concerning accessibility. The model assumes that both profitability (depending, among others, on production means of the farmer) and accessibility (depending, among others, on the social network of the farmer) have to reach a certain threshold before the farmer will adopt the new technology. Econometric results confirm that the assumption that all actors have access to all goods which are sold in markets is indeed too rigid in the case described here.