Consumption Risk, Technology Adoption and Poverty Traps: Evidence From Ethiopia

World Economy & Finance Research Programme Working Paper No. 0035

42 Pages Posted: 12 Jun 2008

See all articles by Stefan Dercon

Stefan Dercon

University of Oxford - Department of Economics

Luc Christiaensen

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: January 2008

Abstract

Much has been written on the determinants of input and technology adoption in agriculture, with issues such as input availability, knowledge and education, risk preferences, profitability, and credit constraints receiving much attention. This paper focuses on a factor that has been less well documented: the differential ability of households to take on risky production technologies for fear of the welfare consequences if shocks result in poor harvests. Building on an explicit model, this is explored in panel data for Ethiopia. Historical rainfall distributions are used to identify the counterfactual consumption risk. Controlling for unobserved household and time-varying village characteristics, it emerges that not just exante credit constraints, but also the possibly low consumption outcomes when harvests fail, discourage the application of fertiliser. The lack of insurance causes inefficiency in production choices.

Keywords: Technology adoption, Fertiliser, Risk, Poverty trap, Ethiopia

JEL Classification: O12, O33, Q12, Q16

Suggested Citation

Dercon, Stefan and Christiaensen, Luc, Consumption Risk, Technology Adoption and Poverty Traps: Evidence From Ethiopia (January 2008). World Economy & Finance Research Programme Working Paper No. 0035. Available at SSRN: https://ssrn.com/abstract=1143425 or http://dx.doi.org/10.2139/ssrn.1143425

Stefan Dercon (Contact Author)

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
44 1865 271084 (Phone)
44 1865 271094 (Fax)

Luc Christiaensen

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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