Exchange asymmetries in productive assets: Tools, fertilizer or cash?

Stein Holden () and Sosina Bezu ()

World Development, 2019, vol. 115, issue C, 269-278

Abstract: Exchange asymmetries in individual decision-making have attracted substantial attention from economists since Thaler (1980) referred to the phenomenon that losses are weighted more heavily than gains as an “endowment effect” and related it to loss aversion and prospect theory. We used a field experiment to investigate exchange asymmetries in productive assets among poor rural respondents in Ethiopia. Farmers were randomly allocated two types of productive assets (tool or fertilizer) or cash, with a choice to keep the productive asset (cash) or exchange it for cash (productive asset). Loss aversion was proxied with a separate experiment and was used to assess the importance of endowment effect theory to explain exchange asymmetries. Our study finds a significant exchange asymmetry and a greater exchange asymmetry for the more popular tool than for fertilizer. Loss aversion could explain a small but significant part of the exchange asymmetry in tools, but trade experience did not reduce the exchange asymmetry. The findings are relevant for whether to use targeted in-kind or cash transfers to stimulate technology adoption and enhance food security among poor rural households. The results imply that in-kind transfers may stimulate input use or investments more than cash transfers.

Keywords: Exchange asymmetry; Endowment effect; Loss aversion; Factor markets; Productive assets; Field experiment (search for similar items in EconPapers)
JEL-codes: D03 D51 O13 Q12 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:115:y:2019:i:c:p:269-278

DOI: 10.1016/j.worlddev.2018.12.002

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