Essays in limitations to technology adoption
Keywords: development
index insurance
ambiguity aversion
framed field experiments
technology adoption
trust and betrayal

While new agricultural technologies may lead to substantial yield improvements, the take-up rates in developing countries have frequently been low. There are many possible reasons why a farmer might refrain from adopting a new technology, and literature has pointed to several possible reasons in different settings. A key area for research is to understand what policies could encourage higher adoption rates. This thesis studies the research question by using a case study of fertiliser adoption in cocoa farming in Ghana.
Chapter I investigates whether returns to fertiliser in cocoa farming are high and whether farmers' adoption decisions can be explained by comparative advantage. Chapter I uses data from Ghana to measure the returns to fertiliser using a correlated random model and static and dynamic panel models of homogeneous returns to fertiliser. The estimated returns in different models are positive, high and strongly significant statistically. The chapter also presents a correlated random effects model of heterogeneous technology, which allows for farmer-specific comparative advantage. The effect of the comparative advantage is found not to be statistically significant.
Chapter II explores the fertiliser investment decisions and risk preferences of Ghanaian cocoa farmers in a framed field experiment. The experimental subjects decided whether to invest in fertiliser, and the fertiliser return depended on a stochastic weather realisation. An inexpensive index insurance scheme with a positive level of basis risk was found to have a minor positive effect on the fertiliser take-up, but this effect was statistically insignificant. An expensive index insurance scheme with no basis risk was found to have a substantial positive effect, and this effect was strongly significant. The experimental findings suggest that farmers are willing to pay for an index insurance if it successfully shields them from income variability.
Chapter III investigates the effect of trust and of an ambiguous environment on fertiliser investments under index insurance. These two behavioural factors were studied by means of a framed field experiment conducted with Ghanaian cocoa farmers. The subjects had an option to invest in a package of fertiliser bundled with index insurance with a positive level of basis risk. The returns depended both on the subjects´ investment choices and a stochastic weather realization. The key ingredient of the study was that for different subjects, the nature of the basis risk was framed differently. Substantially fewer subjects adopted fertiliser when possible losses of fertiliser investment were framed as resulting from the insurer´s failure to meet its contract obligations, compared with an alternative in which the losses were framed as resulting from a mismatch between their own weather realizations and those on which the index insurance was based. A large negative effect on fertiliser investments was also found in treatments with either a small or large ambiguity regarding the exact level of basis risk. Both negative treatment effects were strongly significant. This may suggest that technologies with which farmers are relatively more experienced are more likely to be adopted under index insurance schemes. The overall experimental findings provide evidence that trust and ambiguity may be significant factors other than basis risk, limiting the effectiveness of index insurance in promoting agricultural innovation.