The Effects of Risk and Ambiguity Aversion on Technology Adoption: Evidence from Aquaculture in Ghana
20 December 2018
Small-scale farmers in developing countries frequently make production decisions in a situation of uncertainty because of the prospect of weather-related shocks, crop failure, price fluctuations, etc. They are often compelled to make choices that reduce consumption risk at the cost of future expected profits. The adoption of productivity-enhancing technologies is a domain where these trade-offs can become particularly important. New technologies may be inherently more risky, or require additional investments that increase the risk exposure of farmers.
In this paper, we study how aversion to risk and ambiguity affects the adoption of new technologies by smallholder aquafarmers in Ghana where, over the years, the government and other development agencies have introduced improved technologies to enhance productivity and profitability in fish production.
In the present study we consider the adoption of three distinct technologies: (i) Akosombo strain of Tilapia (AST), a fast-growing breed of tilapia fish that offers farmers the potential to harvest twice a year compared to once only for the existing local breed; and the use of (ii) floating cages; and (iii) extruded feed for the fish under cultivation.
Our results show that, for all three technologies, risk aversion accelerates their adoption. This is in contrast with most of the literature which finds that risk aversion delays the adoption of new technologies. We explain this result by arguing that all three technologies under consideration are risk reducing. On the other hand, we find differential effects of ambiguity aversion on the adoption of the three technologies: ambiguity aversion among farmers slows down the adoption of floating cages but has no effect on the rate of adoption of the two other technologies. We attribute this finding to the significantly higher cost of adopting floating cages, which prevents farmers from small-scale experimentation with the technology. Additionally, we find that the presence of other adopters in the locality attenuates the negative effect of ambiguity aversion on the adoption of floating cages.
The results suggest that the implementation of these technologies might provide fish farmers in Ghana with limited access to credit and insurance a means to negotiate an uncertain environment. Moreover, providing practical information about new agricultural technologies with the help of extension agents and existing farmers in neighbouring villages may mitigate the effects of ambiguity and ambiguity aversion on technology adoption. Our findings also suggest that informing farmers about technologies that mitigate the effects of adverse shocks may accelerate the adoption of new agricultural technologies.
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