A Conceptual Model of Incomplete Markets and the Consequences for Technology Adoption Policies in Ethiopia

In Africa, farmers have been reluctant to take up new varieties of staple crops developed to boost smallholder yields and rural incomes. Low fertilizer use is often mentioned as a proximate cause, but some believe the problem originates with incomp...

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Bibliographic Details
Main Authors:	Larson, Donald F., Gurara, Daniel Zerfu
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	AGRICULTURAL ECONOMICS AGRICULTURAL EXTENSION AGRICULTURAL GROWTH AGRICULTURAL INNOVATIONS AGRICULTURAL MARKET AGRICULTURAL MARKETS AGRICULTURAL POLICY AGRICULTURAL PRODUCERS AGRICULTURAL PRODUCTION AGRICULTURAL PRODUCTION SYSTEMS AGRICULTURAL PRODUCTIVITY AGRICULTURAL RESEARCH AGRICULTURAL SYSTEMS AGRICULTURAL TECHNOLOGIES AGRICULTURE ALLOCATIVE EFFICIENCY ALTERNATIVE POLICIES ASSET PRICING BARLEY CEREAL PRICE CHEMICAL FERTILIZER CHEMICAL FERTILIZERS CLIMATE COMMERCIAL AGENTS COMMERCIALIZATION COMPARATIVE ANALYSIS COMPETITIVE MARKETS COMPETITIVE PRICES CONCEPTUAL FRAMEWORK CREDIT CROP CROP CHOICE CROPPING CROPS DECISION MAKING DELIVERY OF SERVICES DEMAND DEMAND CURVES DEMAND FUNCTION DEMOGRAPHICS DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DEVELOPMENT STRATEGIES ECOLOGICAL CONDITIONS ECONOMETRIC MODELING ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GEOGRAPHY ECONOMIC GROWTH ECONOMICS ECONOMIES EFFICIENCY EMPIRICAL STUDIES ENVIRONMENT ENVIRONMENTAL ENVIRONMENTS EQUITY EXPECTATIONS EXPENDITURE EXTERNALITIES FAILURES FARM FARM HOUSEHOLD FARM MANAGEMENT FARM SIZE FARMERS FARMING FARMING ACTIVITIES FARMING HOUSEHOLDS FARMING METHODS FARMING PRACTICES FARMS FERTILIZER FERTILIZER APPLICATION FERTILIZER APPLICATIONS FERTILIZER CONSUMPTION FERTILIZER DISTRIBUTION FERTILIZER EFFICIENCY FERTILIZER MARKET FERTILIZER PRICES FERTILIZER RESEARCH FERTILIZER SUBSIDIES FERTILIZER USE FINANCIAL MARKETS FOOD POLICY FOOD POLICY RESEARCH FOOD PRICES FOOD SECURITY GRAIN MARKET GROWTH THEORY HOUSEHOLD FOOD HUMAN CAPITAL INCOMPLETE MARKETS INCREASING RETURNS INFLUENCE INORGANIC FERTILIZERS INPUT PRICES INPUT USE INPUTS INVENTORIES INVESTMENTS LABOR MARKET LABOR MARKETS LAND LIQUIDITY MANURE MARGINAL VALUE MARKET ACCESS MARKET CONDITIONS MARKET DEVELOPMENT MARKET FAILURE MARKET REFORMS MARKET RESEARCH MARKET RISKS MARKET STRUCTURE MARKETING MARKETPLACE MAXIMUM LIKELIHOOD METHOD MEASUREMENT MODELS MONOPOLY OPPORTUNITY COSTS OPTIMIZATION OPTIONS ORGANIC CHEMICAL OUTCOMES PESTICIDES PHOSPHATE PHOSPHATE FERTILIZERS POLICY INSTRUMENTS POLITICAL ECONOMY PRICE PRICE RISK PRICE VOLATILITY PRICES PRICING PRODUCERS PRODUCT PRODUCTION FUNCTION PROFIT MAXIMIZATION PROFITS PROPERTY PROPERTY RIGHTS PUBLIC GOODS RAINFALL VARIABILITY RESOURCE CONSERVATION RESOURCES RETAIL RISK AVERSE RISK AVERSION RISK MANAGEMENT SALES SMALLHOLDER AGRICULTURE SOIL SCIENTISTS SPREAD STOCK STOCKS STORAGE SUBSIDIES SUBSIDY SUBSTITUTE SUBSTITUTES SUNK COSTS SUPPLIER SUPPLY SUPPLY CHAIN SUPPLY CHAINS SUPPLY CURVE SURPLUS THEORY TRADE TRADE POLICY TRANSACTION COSTS TRANSACTIONS COSTS TROPICAL AGRICULTURE UREA VALUE VALUE OF OUTPUT VALUES VARIABLES WEALTH WHEAT WHOLESALERS panel selection model
Online Access:	http://hdl.handle.net/10986/16895

Description
Summary:	In Africa, farmers have been reluctant to take up new varieties of staple crops developed to boost smallholder yields and rural incomes. Low fertilizer use is often mentioned as a proximate cause, but some believe the problem originates with incomplete input markets. As a remedy, African governments have introduced technology adoption programs with fertilizer subsidies as a core component. Still, the links between market performance and choices about using fertilizer are poorly articulated in empirical studies and policy discussions, making it difficult to judge whether the programs are expected to generate lasting benefits or to simply offset high fertilizer prices. This paper develops a conceptual model to show how choices made by agents supplying input services combine with household livelihood settings to generate heterogeneous decisions about fertilizer use. An applied model is estimated with data from a panel survey in rural Ethiopia. The results suggest that adverse market conditions limit the adoption of fertilizer-based technologies, especially among resource-poor households. Farmers appear to respond to market signals in the aggregate and this provides a pathway for subsidies to stimulate demand. However, the research suggests that lowering transaction costs, through investments in infrastructure and market institutions, can generate deeper effects by expanding the technologies available to farmers across all pricing outcomes.

A Conceptual Model of Incomplete Markets and the Consequences for Technology Adoption Policies in Ethiopia

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