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

41 Pages Posted: 20 Apr 2016

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: June 1, 2007

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 ex-ante credit constraints, but also the possibly low consumption outcomes when harvests fail, discourage the application of fertilizer. The lack of insurance causes inefficiency in production choices.

Keywords: Economic Theory & Research, Financial Intermediation, Consumption, Insurance & Risk Mitigation, Inequality

Suggested Citation

Dercon, Stefan and Christiaensen, Luc, Consumption Risk, Technology Adoption, and Poverty Traps: Evidence from Ethiopia (June 1, 2007). World Bank Policy Research Working Paper No. 4257. Available at SSRN: https://ssrn.com/abstract=995078

Stefan Dercon

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 (Contact Author)

World Bank ( email )

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

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