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 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.

Bibliographic Details

Main Authors:	Gurara, Daniel Zerfu, Larson, Donald F.
Language:	English en_US
Published:	World Bank, Washington, DC 2013-10
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://documents.worldbank.org/curated/en/2013/10/18457786/conceptual-model-incomplete-markets-consequences-technology-adoption-policies-ethiopia https://hdl.handle.net/10986/16895
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