Joining the Revolution: Executive Functions and the Transition to the Market

This study proposes that some executive functions (EF)s are likely to play an important role in a producer’s willingness to adopt a new market activity. If so, EFs will be important factors in explaining a producer’s willingness to enter new markets and diversify their livelihoods. This paper is unique in that it is the first of its kind to investigate the role of higher-order EFs on entering new markets, filling a void in the literature identified by Dean, Schilbach et al. (2019). There has long been an interest in economics of better understanding the factors that expand the production possibilities frontier, leading to higher productivity and in some cases, a pathway out of poverty. Much of this interest has been on individual’s production management and more specifically on entrepreneurship. Schumpeter (1947) describes the entrepreneur as someone who does new things or does old things in a new way. This study examines the importance of cognitive function in shaping the “ability to do new things […]”, using the concept of EFs, which are defined in the cognitive psychology literature as the top-down mental processes that control an individual’s attention, dictates their ability to use information or suppress instinctive responses when those responses are not optimal (Miller and Cohen 2001, Espy 2004, Burgess and Simons 2005). EFs have received increasing attention in understanding economic behavior. In this study, EFs likely play a role in the optimization function of agricultural producers in the uplands of Laos who are seeking to optimize an objective (e.g. maximize utility, etc.) subject to some constraints. This study uses primary panel data collected from two periods to investigate the role of EFs on management decisions for agricultural producers in upland Laos, particularly producers’ decisions to transition away from the traditional agricultural practice of growing rice to a diversified or specialized system focused on producing cattle for the emerging market. This study uses a binary choice model to investigate selection into a specific agricultural activity and then uses the results of this step to control for selection bias when investigating the role of EFs on production once an agent has selected into a specific production system. Using EFs as proxies for differing management capacities, this study shows that executive functions matter in a producer’s willingness to enter new markets and diversify their livelihoods. Furthermore, higher EFs resulted in larger herd sizes for producers who entered into cattle production. This study adds to the literature in better understanding the underlying role of cognitive function has on adoption. In the future, EFs may be an important constraint to consider when designing successful development projects.