Innovation Adoption and Liquidity Constraints in the Presence of Grassroots Extension Agents: Evidence from the Peruvian Highlands
To analyze the role of the income constraint in slowing innovation adoption, this paper uses a technology diffusion program based on the work of business-oriented grassroots extension agents in the Peruvian Highlands. Taking advantage of a multiplicity of innovations with different characteristics and of information about innovation suppliers who can grant seller credit, we show that the income constraint operates in a limited manner. Moreover, due to higher trust associated with greater familiarity, households are better able to adopt costly and indivisible innovations when a supplier/lender resides in their own community. The story emerging from the program evokes the relatively egalitarian process underlying the Green Revolution as it has taken place in Asian agriculture, in particular. Overall, our conclusion goes against the pessimistic assessment of the impact of extension work in poor areas that emerges from the current literature.
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