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Exchange asymmetries in productive assets: Tools, fertilizer or cash?

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  • Holden, Stein T.
  • Bezu, Sosina

Abstract

Exchange asymmetries in individual decision-making have attracted substantial attention from economists since Thaler (1980) referred to the phenomenon that losses are weighted more heavily than gains as an “endowment effect” and related it to loss aversion and prospect theory. We used a field experiment to investigate exchange asymmetries in productive assets among poor rural respondents in Ethiopia. Farmers were randomly allocated two types of productive assets (tool or fertilizer) or cash, with a choice to keep the productive asset (cash) or exchange it for cash (productive asset). Loss aversion was proxied with a separate experiment and was used to assess the importance of endowment effect theory to explain exchange asymmetries. Our study finds a significant exchange asymmetry and a greater exchange asymmetry for the more popular tool than for fertilizer. Loss aversion could explain a small but significant part of the exchange asymmetry in tools, but trade experience did not reduce the exchange asymmetry. The findings are relevant for whether to use targeted in-kind or cash transfers to stimulate technology adoption and enhance food security among poor rural households. The results imply that in-kind transfers may stimulate input use or investments more than cash transfers.

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  • Holden, Stein T. & Bezu, Sosina, 2019. "Exchange asymmetries in productive assets: Tools, fertilizer or cash?," World Development, Elsevier, vol. 115(C), pages 269-278.
    • Handle: RePEc:eee:wdevel:v:115:y:2019:i:c:p:269-278
    DOI: 10.1016/j.worlddev.2018.12.002
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    More about this item

    Keywords

    Exchange asymmetry; Endowment effect; Loss aversion; Factor markets; Productive assets; Field experiment;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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