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Risk Implications of Farm Technology Adoption in the Ethiopian Highlands

  • Yesuf, Mahmud

    ()

    (Environment for Development-Kenya, Kenyan Institute for Public Policy Research and Analysis (KIPPRA))

  • Kassie, Menale

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Köhlin, Gunnar

    ()

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

In countries where insurance and credit markets are thin or missing, production and consumption risks play a critical role in the choice and use of production inputs and adoption of new farm technologies. In this paper, we investigated impacts of chemical fertilizer and soil and water conservation technologies adoption on production risks, using a moment-based approach and two years of cross-sectional data. A pseudo-fixed-effect model was estimated to generate first, second, and third moments of farm production. Our results revealed that fertilizer adoption reduces yield variability, but increases the risk of crop failure. However, adopting soil and water conservation technology has no impact on yield variability, but reduces the downside risk of crop failure. The results underscore that the risk implications of farm technology adoption vary by technology type. Furthermore, policies that promote adoption of fertilizers should be complemented by desirable instruments that hedge against downside risk. In that respect, if properly implemented, the safety net program and the weather insurance programs currently piloted in some parts of Ethiopia are actions in the right direction.

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File URL: http://hdl.handle.net/2077/21495
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 404.

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Length: 17 pages
Date of creation: 30 Nov 2009
Date of revision:
Handle: RePEc:hhs:gunwpe:0404
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/

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  1. Stefan Dercon & Luc Christiaensen, 2007. "Consumption risk, technology adoption and poverty traps: evidence from Ethiopia," Economics Series Working Papers WPS/2007-06, University of Oxford, Department of Economics.
  2. Mahmud Yesuf & Randall A. Bluffstone, 2009. "Poverty, Risk Aversion, and Path Dependence in Low-Income Countries: Experimental Evidence from Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 1022-1037.
  3. Phoebe Koundouri & Céline Nauges & Vangelis Tzouvelekas, 2006. "Technology Adoption under Production Uncertainty: Theory and Application to Irrigation Technology," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(3), pages 657-670.
  4. Stiglitz, Joseph E, 1974. "Incentives and Risk Sharing in Sharecropping," Review of Economic Studies, Wiley Blackwell, vol. 41(2), pages 219-55, April.
  5. Ben Groom & Phoebe Koundouri & Celine Nauges & Alban Thomas, 2008. "The story of the moment: risk averse cypriot farmers respond to drought management," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 315-326.
  6. Bardhan, Pranab K., 1977. "Variations in forms of tenancy in a peasant economy," Journal of Development Economics, Elsevier, vol. 4(2), pages 105-118, June.
  7. Kassie, Menale & Yesuf, Mahmud & Köhlin, Gunnar, 2008. "The Role of Production Risk in Sustainable Land-Management Technology Adoption in the Ethiopian Highlands," Discussion Papers dp-08-15-efd, Resources For the Future.
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