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

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Author Info
Stefan Dercon (University of Oxford)
Luc Christiaensen (World Bank)

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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 receiving much 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 exante credit constraints, but also the possibly low consumption outcomes when harvests fail, discourage the application of fertiliser. The lack of insurance causes inefficiency in production choices.

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Publisher Info
Paper provided by ESRC World Economy and Finance Research Programme, Birkbeck, University of London in its series WEF Working Papers with number 0035.

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Date of creation: Jan 2008
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Handle: RePEc:wef:wpaper:0035

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Related research
Keywords: Technology adoption; Fertiliser; Risk; Poverty trap; Ethiopia;

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Find related papers by JEL classification:
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Agricultural Extension Services

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References listed on IDEAS
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. Morduch, Jonathan, 1995. "Income Smoothing and Consumption Smoothing," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 103-14, Summer. [Downloadable!] (restricted)
    Other versions:
  2. Stefan Dercon, 2002. "Income Risk, Coping Strategies, and Safety Nets," World Bank Research Observer, Oxford University Press, vol. 17(2), pages 141-166, September.
    Other versions:
  3. Dercon, Stefan, 1996. "Risk, Crop Choice, and Savings: Evidence from Tanzania," Economic Development and Cultural Change, University of Chicago Press, vol. 44(3), pages 485-513, April.
    Other versions:
  4. Luc J. Christiaensen & Kalanidhi Subbarao, 2005. "Towards an Understanding of Household Vulnerability in Rural Kenya," Journal of African Economies, Oxford University Press, vol. 14(4), pages 520-558, December.
  5. Kurosaki, Takashi & Fafchamps, Marcel, 2002. "Insurance market efficiency and crop choices in Pakistan," Journal of Development Economics, Elsevier, vol. 67(2), pages 419-453, April. [Downloadable!] (restricted)
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  6. Townsend, Robert M, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer. [Downloadable!] (restricted)
  7. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March. [Downloadable!] (restricted)
  8. Kazianga, Harounan & Udry, Christopher, 2006. "Consumption smoothing? Livestock, insurance and drought in rural Burkina Faso," Journal of Development Economics, Elsevier, vol. 79(2), pages 413-446, April. [Downloadable!] (restricted)
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  9. Dercon, Stefan, 2004. "Growth and shocks: evidence from rural Ethiopia," Journal of Development Economics, Elsevier, vol. 74(2), pages 309-329, August. [Downloadable!] (restricted)
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  10. Honore, Bo E, 1992. "Trimmed LAD and Least Squares Estimation of Truncated and Censored Regression Models with Fixed Effects," Econometrica, Econometric Society, vol. 60(3), pages 533-65, May. [Downloadable!] (restricted)
  11. Suleiman Abrar & Oliver Morrissey & Tony Rayner, 2004. "Crop-Level Supply Response by Agro-Climatic Region in Ethiopia," Journal of Agricultural Economics, Blackwell Publishing, vol. 55(2), pages 289-311. [Downloadable!] (restricted)
  12. Carlsson, Fredrik & Köhlin, Gunnar & Mekonnen, Alemu & Yesuf, Mahmud, 2005. "Are Agricultural Extension Packages What Ethiopian Farmers Want? A Stated Preference Analysis," Working Papers in Economics 172, Göteborg University, Department of Economics. [Downloadable!]
  13. Feder, Gershon & Just, Richard E & Zilberman, David, 1985. "Adoption of Agricultural Innovations in Developing Countries: A Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 255-98, January.
  14. Eswaran, Mukesh & Kotwal, Ashok, 1990. "Implications of Credit Constraints for Risk Behaviour in Less Developed Economies," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 473-82, April. [Downloadable!] (restricted)
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Cited by:
(explanations, 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. Gine, Xavier & Yang, Dean, 2007. "Insurance, credit, and technology adoption : field experimental evidence from Malawi," Policy Research Working Paper Series 4425, The World Bank. [Downloadable!]
    Other versions:
  2. Christiaensen, Luc & Hoffmann, Vivian & Sarris, Alexander, 2007. "Gauging the welfare effects of shocks in rural Tanzania," Policy Research Working Paper Series 4406, The World Bank. [Downloadable!]
  3. Byerlee, Derek & Spielman, David J. & Alemu, Dawit & Gautam, Madhur, 2007. "Policies to promote cereal intensification in Ethiopia: A review of evidence and experience," IFPRI discussion papers 707, International Food Policy Research Institute (IFPRI). [Downloadable!]
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