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Consumption risk, technology adoption, and poverty traps : evidence from Ethiopia

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  • Dercon, Stefan
  • Christiaensen, Luc

Abstract

Much has been written on the determinants of input and technology adoption in agriculture, with issues such as input availability, knowledge and education, risk preferences, profitability, and credit constraints receivingmuch attention. This paper focuses on a factor that has been less well documented-the differential ability of households to take on risky production technologies for fear of the welfare consequences if shocks result in poor harvests. Building on an explicit model, this is explored in panel data for Ethiopia. Historical rainfall distributions are used to identify the counterfactual consumption risk. Controlling for unobserved household and time-varying village characteristics, it emerges that not just ex-ante credit constraints, but also the possibly low consumption outcomes when harvests fail, discourage the application of fertilizer. The lack of insurance causes inefficiency in production choices.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4257.

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Date of creation: 01 Jun 2007
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Handle: RePEc:wbk:wbrwps:4257

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Keywords: Economic Theory&Research; Financial Intermediation; Consumption; Insurance&Risk Mitigation; Inequality;

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  1. Stefan Dercon, 2000. "Income risk, coping strategies and safety nets," Economics Series Working Papers WPS/2000-26, University of Oxford, Department of Economics.
  2. Takashi Kurosaki & Marcel Fafchamps, 1998. "Insurance Market Efficiency and Crop Choices in Pakistan," Discussion Paper Series a358, Institute of Economic Research, Hitotsubashi University.
  3. Stefan Dercon, 2003. "Growth and Shocks: evidence from rural Ethiopia," CSAE Working Paper Series 2003-12, Centre for the Study of African Economies, University of Oxford.
  4. Boucher, Stephen R. & Guirkinger, Catherine & Trivelli, Carolina, 2006. "Direct Elicitation of Credit Constraints: Conceptual and Practical Issues with an Empirical Application to Peruvian Agriculture," Working Papers 6883, University of California, Davis, Department of Agricultural and Resource Economics.
  5. Stefan Dercon, 1993. "Risk, crop choice and savings: evidence from Tanzania," Economics Series Working Papers WPS/1993-02, University of Oxford, Department of Economics.
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