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

  • Stefan Dercon
  • Luc Christiaensen

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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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2007-06.

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Date of creation: 2007
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Handle: RePEc:csa:wpaper:2007-06
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  1. 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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  14. 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, University of Gothenburg, Department of Economics.
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