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Endogenous Technology Adoption Under Production Risk: Theory and Application to Irrigation Technology

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Author Info

  • Phoebe Koundouri

    (Department of Economics, University of Reading, Reading, UK)

  • Celine Nauges

    (LEERNA-INRA, Universite des Sciences Sociales, France)

  • Vangelis Tzouvelekas

    ()
    (Department of Economics, University of Crete, Greece)

Abstract

The main objective of this paper is to present a theoretical framework that conceptualizes technology adoption as a decision process involving information acquisition by farmers who face yield uncertainty and vary in their risk preferences. This is done by integrating the microeconomic foundations used to analyze production uncertainty at the farm level with the traditional technological adoption models. First we follow the approach of Antle (1987) based on higher-order moments of profit, which enables flexible estimation of the stochastic technology without ad hoc specification of risk preferences. Then individual risk preferences are derived, which are then used to explain farmer’s decision to adopt modern water saving technologies. The proposed model is applied to a randomly selected sample of 265 farms located in Crete, Greece. Results show that risk preferences affect the probability of adoption and provide evidence that farmers invest in new technologies as a means of hedging against input related production risk.

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Bibliographic Info

Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0411.

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Length: 17 pages
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Handle: RePEc:crt:wpaper:0411

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Related research

Keywords: risk attitudes; technology adoption; stochastic agricultural production; momentsbased estimation;

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References

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  1. Dinar, Ariel & Yaron, Dan, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 6(4), April.
  2. Moore, Michael R. & Gollehon, Noel R. & Carey, Marc B., 1994. "Alternative models of input allocation in multicrop systems: irrigation water in the central plains, United States," Agricultural Economics, Blackwell, vol. 11(2-3), pages 143-158, December.
  3. Dinar, Ariel & Zilberman, David, 1991. "The economics of resource-conservation, pollution-reduction technology selection: The case of irrigation water," Resources and Energy, Elsevier, vol. 13(4), pages 323-348, December.
  4. Jensen, Richard, 1982. "Adoption and diffusion of an innovation of uncertain profitability," Journal of Economic Theory, Elsevier, vol. 27(1), pages 182-193, June.
  5. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  6. Batz, F.-J. & Peters, K.J. & Janssen, W., 1999. "The influence of technology characteristics on the rate and speed of adoption," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 21(2), October.
  7. Subal C. Kumbhakar, 2002. "Specification and Estimation of Production Risk, Risk Preferences and Technical Efficiency," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 8-22.
  8. Joseph E. Stiglitz, 1973. "Incentives and Risk-Sharing in Sharecropping," Cowles Foundation Discussion Papers 353, Cowles Foundation for Research in Economics, Yale University.
  9. Negri, Donald H. & Brooks, Douglas H., 1990. "Determinants Of Irrigation Technology Choice," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 15(02), December.
  10. David Zilberman & Doug Parker, 1996. "Explaining Irrigation Technology Choices: A Microparameter Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 1064-1072.
  11. H. Alan Love & Steven T. Buccola, 1999. "Joint Risk Preference-Technology Estimation with a Primal System: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 245-247.
  12. Bardhan, Pranab K., 1977. "Variations in forms of tenancy in a peasant economy," Journal of Development Economics, Elsevier, vol. 4(2), pages 105-118, June.
  13. Ariel Dinar & Mark Campbell & David Zilberman, 1992. "Adoption of improved irrigation and drainage reduction technologies under limiting environmental conditions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(4), pages 373-398, July.
  14. V. Ball & Jean-Christophe Bureau & Jean-Pierre Butault & Richard Nehring, 2001. "Levels of Farm Sector Productivity: An International Comparison," Journal of Productivity Analysis, Springer, vol. 15(1), pages 5-29, January.
  15. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February.
  16. Santos, Francisco L., 1996. "Evaluation and adoption of irrigation technologies. I. Management-design curves for furrow and level basin systems," Agricultural Systems, Elsevier, vol. 52(2-3), pages 317-329.
  17. Coupal, Roger H. & Wilson, Paul N., 1990. "Adopting water-conserving irrigation technology: The case of surge irrigation in Arizona," Agricultural Water Management, Elsevier, vol. 18(1), pages 15-28, May.
  18. Batz, F. -J. & Peters, K. J. & Janssen, W., 1999. "The influence of technology characteristics on the rate and speed of adoption," Agricultural Economics, Blackwell, vol. 21(2), pages 121-130, October.
  19. Dinar, Ariel & Yaron, Dan, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics, Blackwell, vol. 6(4), pages 315-332, April.
  20. Antle, John M, 1983. "Testing the Stochastic Structure of Production: A Flexible Moment-based Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(3), pages 192-201, July.
  21. Schaible, Glenn D. & Kim, C.S. & Whittlesey, Norman K., 1991. "Water Conservation Potential From Irrigation Technology Transitions In The Pacific Northwest," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 16(02), December.
  22. Batra, Raveendra N., 1974. "Resource allocation in a general equilibrium model of production under uncertainty," Journal of Economic Theory, Elsevier, vol. 8(1), pages 50-63, May.
  23. Moore, Michael R. & Negri, Donald H., 1992. "A Multicrop Production Model Of Irrigated Agriculture, Applied To Water Allocation Policy Of The Bureau Of Reclamation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(01), July.
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Citations

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Cited by:
  1. Phoebe Koundouri, . "Current issues in the economics of groundwater resource management," DEOS Working Papers 0402, Athens University of Economics and Business.
  2. Luter, Ryan L. & Norwood, F. Bailey & Massey, Raymond E., 2004. "Substitutability of Livestock Manure for Chemical Fertilizer: A Contingent Valuation Analysis of Crop Producers," 2004 Annual meeting, August 1-4, Denver, CO 19914, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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