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Title: Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China
Authors: Liu, Elaine M.
Keywords: technology
risk preferences
prospect theory
Issue Date: 1-May-2008
Series/Report no.: Working Papers (Princeton University. Industrial Relations Section) ; 526
Abstract: The slow diffusion of new technology in the agricultural sector of developing countries has long puzzled development economists. While most of the current empirical research on technology adoption focuses on credit constraints and learning spillovers, this paper examines the role of individual risk attitudes in the decision to adopt a new form of agricultural biotechnology in China. I conducted a survey and a field experiment to elicit the risk preferences of 320 Chinese farmers, who faced the decision of whether to adopt genetically modified Bt cotton a decade ago. Bt cotton is more effective in pest prevention and thus requires less pesticides than traditional cotton. In my analysis, I expand the measurement of risk preferences beyond expected utility theory to incorporate prospect theory parameters such as loss aversion and nonlinear probability weighting. Using the parameters elicited from the experiment, I find that farmers who are more risk averse or more loss averse adopt Bt cotton later. Farmers who overweight small probabilities adopt Bt cotton earlier.
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