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Learning about Oneself: Technology Financing in a Tamil Fishing

  • Xavier Gine

    ()

    (DECRG The World Bank)

  • Stefan Klonner

We study adoption of a costly new technology when the profitability of the new technique differs over individuals and there is uncertainty about these individual-specific differences. We establish that such individual-specific uncertainty results in a financing constraint when debt contracts are characterized by limited liability and limited commitment on the side of the borrower. In data from a Tamil coastal village, in which a new fishing boat became available in 2001, we find significant evidence for individual-specific uncertainty about the profitability of the new technology. Results suggest that this uncertainty reduces the amount of external finance available for the technology switch by 20 percent. The resulting need for complementary self-finance creates a wealth threshold, below which adoption, even if profitable, is not feasible. Kuznets-type inequality dynamics result on the middle run.

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 524.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:524
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  1. Mark Rosenzweig & Andrew D. Foster, . "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Home Pages _068, University of Pennsylvania.
  2. Timothy Conley & Udry Christopher, 2001. "Social Learning Through Networks: The Adoption of New Agricultural Technologies in Ghana," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 668-673.
  3. Shaban, Radwan Ali, 1987. "Testing between Competing Models of Sharecropping," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 893-920, October.
  4. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Oriana Bandiera & Imran Rasul, 2002. "Social Networks and Technology Adoption in Northern Mozambique," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 35, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  6. Basu, Kaushik, 1992. "Limited liability and the existence of share tenancy," Journal of Development Economics, Elsevier, vol. 38(1), pages 203-220, January.
  7. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  8. Jacoby, Hanan G. & Li, Guo & Rozelle, Scott, 2002. "Hazards Of Expropriation:Tenure Insecurity And Investment In Rural China," Working Papers 11960, University of California, Davis, Department of Agricultural and Resource Economics.
  9. Besley, Timothy & Case, Anne, 1993. "Modeling Technology Adoption in Developing Countries," American Economic Review, American Economic Association, vol. 83(2), pages 396-402, May.
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