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Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China

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  • Elaine Meichen Liu

    (Princeton University)

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    Abstract

    The slow diffusion of new technology in the agricultural sector of developing countries has long puzzled development economists. While most of the current empirical research on technology adoption focuses on credit constraints and learning spillovers, this paper examines the role of individual risk attitudes in the decision to adopt a new form of agricultural biotechnology in China. I conducted a survey and a field experiment to elicit the risk preferences of 320 Chinese farmers, who faced the decision of whether to adopt genetically modified Bt cotton a decade ago. Bt cotton is more effective in pest prevention and thus requires less pesticides than traditional cotton. In my analysis, I expand the measurement of risk preferences beyond expected utility theory to incorporate prospect theory parameters such as loss aversion and nonlinear probability weighting. Using the parameters elicited from the experiment, I find that farmers who are more risk averse or more loss averse adopt Bt cotton later. Farmers who overweight small probabilities adopt Bt cotton earlier.

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    Bibliographic Info

    Paper provided by Princeton University, Department of Economics, Industrial Relations Section. in its series Working Papers with number 1064.

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    Date of creation: May 2008
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    Handle: RePEc:pri:indrel:dsp01vh53wv73p

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    Related research

    Keywords: Technology Adoption; Risk Preferences; Prospect Theory;

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    Cited by:
    1. Barrows, Geoffrey & Sexton, Steven & Zilberman, David, 2013. "The Impact of Agricultural Biotechnology on Supply and Land-Use," CUDARE Working Paper Series 1133, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
    2. Galarza, Francisco B., 2009. "Choices under Risk in Rural Peru," Staff Paper Series 542, University of Wisconsin, Agricultural and Applied Economics.
    3. Michal Bauer & Julie Chytilova & Jonathan Morduch, 2012. "Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India," American Economic Review, American Economic Association, vol. 102(2), pages 1118-39, April.
    4. Bellemare, Marc F., 2010. "Insecure Land Rights and Share Tenancy in Madagascar," MPRA Paper 23640, University Library of Munich, Germany.

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