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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)

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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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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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
  2. 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.
  3. Dinar, Ariel & Yaron, Dan, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics, Blackwell, vol. 6(4), pages 315-332, April. [Downloadable!] (restricted)
  4. Stiglitz, Joseph E, 1974. "Incentives and Risk Sharing in Sharecropping," Review of Economic Studies, Blackwell Publishing, vol. 41(2), pages 219-55, April. [Downloadable!] (restricted)
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  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Jensen, Richard, 1982. "Adoption and diffusion of an innovation of uncertain profitability," Journal of Economic Theory, Elsevier, vol. 27(1), pages 182-193, June. [Downloadable!] (restricted)
  11. 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. [Downloadable!]
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  1. Luter, Ryan & Norwood, Bailey & Massey, Raymond, 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). [Downloadable!]
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