Risk Preferences and the Poverty Trap: A Look at Farm Technology Uptake amongst Smallholder Farmers in the Matzikama Municipality

Abstract

This study looks at the determinants of farm technology uptake, with attention to farmers’ risk preference and income. We use a field experiment to elicit measures of risk aversion, loss aversion, and non-linear weights of probability. We then relate these measures to the uptake of drought-resistant and improved seeds. In light of the poverty trap theory, we also consider the role that income plays in risk preference. Our findings suggest that farm risk management policies need to take into account the role of risk and loss preferences in uptake decisions. We find that farmers do not effectively weight probabilities and that the weighting of probabilities in turn affects the uptake of adaptive mechanisms. Improved access to extension services can help farmers understand weather and climate risk, probabilities of loss, and technologies and other adaptive strategies. We also find that low incomes discourage the uptake of resilient crop types, both in the form of naturally drought-resistant crops and technologically modified improved seeds. This signals the need for proactive measures to guarantee access to a minimum package of assets to poor farmers.