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Risk preferences, shocks and technology adoption: responses to drought risk

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S.T. Holden
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Climate  risk  represents  an  increasing  threat  to  poor  and  vulnerable  farmers  in  drought-prone areas of Africa. This study assesses the maize and fertilizer adoption responses of food insecure farmers  in  Malawi, where  Drought  Tolerant  (DT)  maize  was recently introduced.  A  field experiment,  eliciting  relative  risk  aversion,  loss  aversion  and  subjective  probability  weighting parameters of farmers,  is  combined  with  a  detailed  farm  household  survey  that  measured  the intensity of adoption of different maize types and fertilizer use on the different maize types and recorded  exposure to  past  and  present  drought  and  other  shocks.  More  risk  averse households were  more  likely  to  have  adopted  DT  maize, less  likely  to  have  adopted  other  improved  maize varieties  and  less  likely  to  have  dis-adopted  traditional  local  maize.  Exposure  to  past  drought shocks stimulated adoption of DT maize and dis-adoption of local maize. Over-weighting of small probabilities was associated with less use of fertilizer on all maize types.