Working Paper 233 - Technology Adoption and Risk Exposure among Smallholder Farmers: Panel Data Evidence from Tanzania and Uganda
Mukasa Adamon N. ()
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Mukasa Adamon N.: African Development Bank, Postal: 15 Avenue du Ghana P.O.Box 323-1002 Tunis-Belvedère, Tunisia, https://www.afdb.org/en/knowledge/publications/
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This paper investigates the empirical linkages between production risk and technology adoption decisions among agricultural farmers in Tanzania and Uganda using a balanced household panel dataset from the World Bank’s LSMS-ISA project. Applying a moment-based approach and a Mundlak-Chamberlain IV fixed effects model to control for endogeneity and unobserved heterogeneity, I find that the first four moments of production significantly explain changes in the probability of adopting chemical fertilizer, improved seeds, and pesticides. While the use of these modern inputs is found to be risk-decreasing, estimates suggest that the higher their purchasing costs, the greater the cost of farmers’ private risk bearing. Under the assumption of a moderate risk aversion, the risk premium amounts to 12.7% and 30.5% of the expected production revenues respectively in Tanzania and Uganda, largely explained by production volatility and downside risk aversion. This underscores the need to account for farmers’ preferences towards higher order moments when designing technology adoption policies
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