Practice Job Talk: Transaction Costs, Technology Adoption, and Input Subsidies in African Agriculture: Theory and Evidence from Western Kenya

• Development Workshop

Date and Location

Tuesday, October 2, 2018, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Many governments in sub-Saharan Africa attempt to increase food security by subsidizing adoption of technologies like hybrid seeds and fertilizers. Subsidies often target relatively wealthy households that sell the staple crops that they produce. But when selling staples incurs transaction costs, households on the margin of selling staples may have the greatest incentives to adopt new technologies that allow them to overcome transaction costs of selling output. Similarly, households on the margin of buying staples may adopt new technologies that reduce their costs of buying staples from the market. I formalize this intuition by modeling a household’s adoption of an agricultural technology when it is costly to transact in output markets. The model shows households near the margins of selling or buying staples have the greatest incentives to adopt new technologies. I test this prediction using data from a randomized control trial of high-yielding maize varieties developed for western Kenya. Randomized access to hybrid seeds increases adoption most for sellers of maize and least for autarkic households, with differences in adoption driven by market participation. The theoretical and empirical analyses show that when output markets have transaction costs, output market participation is important to technology adoption decisions.