IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/122403.html
   My bibliography  Save this paper

Endogenous Technology Adoption Under Production Risk: Theory and Application to Irrigation Technology

Author

Listed:
  • Koundouri, Phoebe
  • Nauges, Celine
  • Tzouvelekas, Vangelis

Abstract

The main objective of this paper is to present a theoretical framework that conceptualizes technology adoption as a decision process involving information acquisition by farmers who face yield uncertainty and vary in their risk preferences. This is done by integrating the microeconomic foundations used to analyze production uncertainty at the farm level with the traditional technological adoption models. First we follow the approach of Antle (1987) based on higher-order moments of profit, which enables flexible estimation of the stochastic technology without ad hoc specification of risk preferences. Then individual risk preferences are derived, which are then used to explain farmer’s decision to adopt modern water saving technologies. The proposed model is applied to a randomly selected sample of 265 farms located in Crete, Greece. Results show that risk preferences affect the probability of adoption and provide evidence that farmers invest in new technologies as a means of hedging against input related production risk.

Suggested Citation

  • Koundouri, Phoebe & Nauges, Celine & Tzouvelekas, Vangelis, 2005. "Endogenous Technology Adoption Under Production Risk: Theory and Application to Irrigation Technology," MPRA Paper 122403, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:122403
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/122403/1/MPRA_paper_122403.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Zilberman & Doug Parker, 1996. "Explaining Irrigation Technology Choices: A Microparameter Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 1064-1072.
    2. Ariel Dinar & Mark Campbell & David Zilberman, 1992. "Adoption of improved irrigation and drainage reduction technologies under limiting environmental conditions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 2(4), pages 373-398, July.
    3. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February.
    4. Coupal, Roger H. & Wilson, Paul N., 1990. "Adopting water-conserving irrigation technology: The case of surge irrigation in Arizona," Agricultural Water Management, Elsevier, vol. 18(1), pages 15-28, May.
    5. Saha Atanu & H. Alan Love & Robert Schwart, 1994. "Adoption of Emerging Technologies Under Output Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(4), pages 836-846.
    6. Subal C. Kumbhakar, 2002. "Specification and Estimation of Production Risk, Risk Preferences and Technical Efficiency," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 8-22.
    7. Dan Yaron & Hillary Voet & Ariel Dinar, 1992. "Innovations on Family Farms: The Nazareth Region in Israel," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(2), pages 361-370.
    8. Moore, Michael R. & Negri, Donald H., 1992. "A Multicrop Production Model Of Irrigated Agriculture, Applied To Water Allocation Policy Of The Bureau Of Reclamation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(1), pages 1-15, July.
    9. Batz, F. -J. & Peters, K. J. & Janssen, W., 1999. "The influence of technology characteristics on the rate and speed of adoption," Agricultural Economics, Blackwell, vol. 21(2), pages 121-130, October.
    10. H. Alan Love & Steven T. Buccola, 1991. "Joint Risk Preference-Technology Estimation with a Primal System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 765-774.
    11. Michael R. Moore & Noel R. Gollehon & Marc B. Carey, 1994. "Alternative models of input allocation in multicrop systems: Irrigation water in the Central Plains, United States," Agricultural Economics, International Association of Agricultural Economists, vol. 11(2-3), pages 143-158, December.
    12. Margriet Caswell & David Zilberman, 1985. "The Choices of Irrigation Technologies in California," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(2), pages 224-234.
    13. Jensen, Richard, 1982. "Adoption and diffusion of an innovation of uncertain profitability," Journal of Economic Theory, Elsevier, vol. 27(1), pages 182-193, June.
    14. V. Ball & Jean-Christophe Bureau & Jean-Pierre Butault & Richard Nehring, 2001. "Levels of Farm Sector Productivity: An International Comparison," Journal of Productivity Analysis, Springer, vol. 15(1), pages 5-29, January.
    15. Antle, John M, 1983. "Testing the Stochastic Structure of Production: A Flexible Moment-based Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(3), pages 192-201, July.
    16. Bardhan, Pranab K., 1977. "Variations in forms of tenancy in a peasant economy," Journal of Development Economics, Elsevier, vol. 4(2), pages 105-118, June.
    17. Michael R. Moore & Noel R. Gollehon & Marc B. Carey, 1994. "Multicrop Production Decisions in Western Irrigated Agriculture: The Role of Water Price," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(4), pages 859-874.
    18. Schaible, Glenn D. & Kim, C.S. & Whittlesey, Norman K., 1991. "Water Conservation Potential From Irrigation Technology Transitions In The Pacific Northwest," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 16(2), pages 1-13, December.
    19. Hans P. Binswanger, 1982. "Empirical Estimation and Use of Risk Preferences: Discussion," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(2), pages 391-393.
    20. Joseph E. Stiglitz, 1974. "Incentives and Risk Sharing in Sharecropping," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(2), pages 219-255.
    21. Richard H. Day, 1965. "Probability Distributions of Field Crop Yields," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 47(3), pages 713-741.
    22. Dinar, Ariel & Yaron, Dan, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics, Blackwell, vol. 6(4), pages 315-332, April.
    23. Dinar, Ariel & Zilberman, David, 1991. "The economics of resource-conservation, pollution-reduction technology selection: The case of irrigation water," Resources and Energy, Elsevier, vol. 13(4), pages 323-348, December.
    24. Rulon D. Pope, 1982. "Empirical Estimation and Use of Risk Preferences: An Appraisal of Estimation Methods That Use Actual Economic Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(2), pages 376-383.
    25. Santos, Francisco L., 1996. "Evaluation and adoption of irrigation technologies. I. Management-design curves for furrow and level basin systems," Agricultural Systems, Elsevier, vol. 52(2-3), pages 317-329.
    26. H. Alan Love & Steven T. Buccola, 1999. "Joint Risk Preference-Technology Estimation with a Primal System: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 245-247.
    27. Moore, Michael R. & Gollehon, Noel R. & Carey, Marc B., 1994. "Alternative models of input allocation in multicrop systems: irrigation water in the central plains, United States," Agricultural Economics, Blackwell, vol. 11(2-3), pages 143-158, December.
    28. Richard E. Just & Rulon D. Pope, 1979. "Production Function Estimation and Related Risk Considerations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 61(2), pages 276-284.
    29. Peter B. R. Hazell, 1982. "Application of Risk Preference Estimates in Firm-Household and Agricultural Sector Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(2), pages 384-390.
    30. Tsur, Yacov & Sternberg, Menachem & Hochman, Eithan, 1990. "Dynamic Modelling of Innovation Process Adoption with Risk Aversion and Learning," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 336-355, April.
    31. Ariel Dinar & Dan Yaron, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics, International Association of Agricultural Economists, vol. 6(4), pages 315-332, April.
    32. John M. Antle, 1987. "Econometric Estimation of Producers' Risk Attitudes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(3), pages 509-522.
    33. F.‐J. Batz & K.J. Peters & W. Janssen, 1999. "The influence of technology characteristics on the rate and speed of adoption," Agricultural Economics, International Association of Agricultural Economists, vol. 21(2), pages 121-130, October.
    34. Wayne A. Fuller, 1965. "Stochastic Fertilizer Production Functions for Continuous Corn," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 47(1), pages 105-119.
    35. Negri, Donald H. & Brooks, Douglas H., 1990. "Determinants Of Irrigation Technology Choice," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 15(2), pages 1-12, December.
    36. Jock R. Anderson, 1973. "Sparse Data, Climatic Variability, and Yield Uncertainty in Response Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 55(1), pages 77-82.
    37. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    38. Batra, Raveendra N., 1974. "Resource allocation in a general equilibrium model of production under uncertainty," Journal of Economic Theory, Elsevier, vol. 8(1), pages 50-63, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luter, Ryan L. & Norwood, F. Bailey & Massey, Raymond E., 2004. "Substitutability of Livestock Manure for Chemical Fertilizer: A Contingent Valuation Analysis of Crop Producers," 2004 Annual meeting, August 1-4, Denver, CO 19914, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Prifti, Ervin & Daidone, Silvio & Pace, Noemi & Davis, Benjamin, 2019. "Unconditional cash transfers, risk attitudes and modern inputs demand," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 53, pages 100-118.
    3. Javad Torkamani & Shahrokh Shajari, 2008. "Adoption of New Irrigation Technology Under Production Risk," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 22(2), pages 229-237, February.
    4. Phoebe Koundouri, 2004. "Current Issues in the Economics of Groundwater Resource Management," Journal of Economic Surveys, Wiley Blackwell, vol. 18(5), pages 703-740, December.
    5. Kassie, Menale & Pender, John & Yesuf, Mahmud & Köhln, Gunnar & Mulugeta, Elias, 2008. "The Role of Soil Conservation on Mean Crop Yield and Variance of Yield: Evidence from the Ethiopian Highlands," RFF Working Paper Series dp-08-08-efd, Resources for the Future.
    6. Mohamed Ayadi & Wided Mattoussi, 2014. "From Productivity to Exporting or Vice Versa? Evidence from Tunisian Manufacturing Sector," Working Papers 852, Economic Research Forum, revised Nov 2014.
    7. Rossi, Fabiana Ribeiro & Souza Filho, Hildo Meirelles de & Carrer, Marcelo Jose, 2016. "Irrigation adoption by orange producers of the state of São Paulo-Brazil: determinants and barriers," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230121, Southern Agricultural Economics Association.
    8. Wided Mattoussi & Foued Mattoussi, 2010. "Adoption of Modern Irrigation Technologies in the Presence of Water Theft and Corruption: Evidence from Public Irrigated Areas in Medjez El Bab," Working Papers 570, Economic Research Forum, revised 11 Jan 2010.
    9. Ben Groom & Phoebe Koundouri & Celine Nauges & Alban Thomas, 2008. "The story of the moment: risk averse cypriot farmers respond to drought management," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 315-326.
    10. Mohamed Ayadi & Wided Matoussi, 2014. "Working Paper - 214 - From Productivity to Exporting or Vice Versa Evidence from Tunisian Manufacturing Sector," Working Paper Series 2150, African Development Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Phoebe Koundouri, 2004. "Current Issues in the Economics of Groundwater Resource Management," Journal of Economic Surveys, Wiley Blackwell, vol. 18(5), pages 703-740, December.
    2. Ben Groom & Phoebe Koundouri & Celine Nauges & Alban Thomas, 2003. "Irrigation water management under risk: An application to Cyprus," DEOS Working Papers 0306, Athens University of Economics and Business.
    3. Koundouri, Phoebe & Laukkanen, Marita, 2004. "Stochastic Production in a Regulated Fishery:The Importance of Risk Considerations," MPRA Paper 41912, University Library of Munich, Germany.
    4. Ben Groom & Phoebe Koundouri & Celine Nauges & Alban Thomas, 2008. "The story of the moment: risk averse cypriot farmers respond to drought management," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 315-326.
    5. Javad Torkamani & Shahrokh Shajari, 2008. "Adoption of New Irrigation Technology Under Production Risk," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 22(2), pages 229-237, February.
    6. Antti Saastamoinen, 2015. "Heteroscedasticity Or Production Risk? A Synthetic View," Journal of Economic Surveys, Wiley Blackwell, vol. 29(3), pages 459-478, July.
    7. César Salazar & John Rand, 2016. "Production risk and adoption of irrigation technology: evidence from small-scale farmers in Chile," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 25(1), pages 1-37, December.
    8. Margarita Genius & Christos Pantzios & Vangelis Tzouvelekas, 2003. "Information Acquisition and Adoption of Organic Farming Practices: Evidence from Farm Operations in Crete, Greece," Working Papers 0305, University of Crete, Department of Economics.
    9. Yesuf, Mahmud & Kassie, Menale & Köhlin, Gunnar, 2009. "Risk Implications of Farm Technology Adoption in the Ethiopian Highlands," Working Papers in Economics 404, University of Gothenburg, Department of Economics.
    10. Nolan, Elizabeth & Santos, Paulo, 2012. "Insurance premiums and GM traits," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 125942, International Association of Agricultural Economists.
    11. Alcon, Francisco & De Miguel, María Dolores & Burton, Michael P., 2008. "Adopción de tecnología de distribución y control del agua en las Comunidades de Regantes de la Región de Murcia," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 8(01), pages 1-19.
    12. Gautam, Tej K. & Bhatta, Dependra, 2017. "Determinants Of Irrigation Technology Adoptions And Production Efficiency In Nepal’S Agricultural Sector," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252856, Southern Agricultural Economics Association.
    13. Amer Ait Sidhoum, 2023. "Measuring farm productivity under production uncertainty," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(4), pages 672-687, October.
    14. Z. Bar‐Shira & R.E. Just & D. Zilberman, 1997. "Estimation of farmers' risk attitude: an econometric approach," Agricultural Economics, International Association of Agricultural Economists, vol. 17(2-3), pages 211-222, December.
    15. Jian Shi & JunJie Wu & Beau Olen, 2022. "Impacts of climate and weather on irrigation technology adoption and agricultural water use in the U.S. pacific northwest," Agricultural Economics, International Association of Agricultural Economists, vol. 53(3), pages 387-406, May.
    16. Mark W. Rosegrant & James A. Roumasset, 1985. "The Effect Of Fertiliser On Risk: A Heteroscedastic Production Function With Measurable Stochastic Inputs," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 29(2), pages 107-121, August.
    17. Agarwal, Sandip Kumar, 2017. "Subjective beliefs and decision making under uncertainty in the field," ISU General Staff Papers 201701010800006248, Iowa State University, Department of Economics.
    18. Reynaud, Arnaud, 2009. "Adaptation à court et à long terme de l'agriculture au risque de sécheresse : une approche par couplage de modèles biophysiques et économiques," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement (RAEStud), Institut National de la Recherche Agronomique (INRA), vol. 90(2).
    19. Elizabeth Nolan & Paulo Santos, 2019. "Genetic modification and yield risk: A stochastic dominance analysis of corn in the USA," PLOS ONE, Public Library of Science, vol. 14(10), pages 1-10, October.
    20. Pronti, Andrea & Auci, Sabrina & Berbel, Julio, 2024. "Water conservation and saving technologies for irrigation. A structured literature review of econometric studies on the determinants of adoption," Agricultural Water Management, Elsevier, vol. 299(C).

    More about this item

    Keywords

    risk attitudes; technology adoption; stochastic agricultural production; moments-based estimation;
    All these keywords.

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • D0 - Microeconomics - - General
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:122403. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.