The Monetary Value of Externalities : Experimental Evidence from Ugandan Farmers

Understanding the value of the externalities associated with a technology is crucial to correctly estimate the welfare benefits of public policies and investments. Suboptimal adoption rates of agricultural technologies in low-income countries partly result from farmers not fully internalizing the positive externalities of adoption. This paper designs an experiment to measure the monetary value of the externalities of an agricultural pest-control technology; it elicits a farmer’s willingness-to-pay for another farmer to adopt the technology, as a measure of the externalities generated by the other farmer. The findings show that externalities are large, as mean willingness-to-pay for others is equal to two days’ wage, or half the willingness-to-pay for themselves. Willingness-to-pay for another farmer depends on social proximity (as it is easier to learn about the technology from closer connections), and the distance between their two plots (as pest-control is more beneficial for plot neighbors). Targeting the technology to farmers with geographically central plots and more socially connected farmers generates greater positive externalities and more social value than targeting farmers with the highest willingness-to-pay for themselves.