Elaine Liu

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The slow diffusion of new technology in the agricultural sector of developing countries has long
puzzled development economists. While most of the current empirical research on technology
adoption focuses on credit constraints and learning spillovers, this paper examines the role of
individual risk attitudes in the decision to adopt a new form of agricultural biotechnology in
China. I conducted a survey and a field experiment to elicit the risk preferences of 320 Chinese
farmers, who faced the decision of whether to adopt genetically modified Bt cotton a decade ago.
Bt cotton is more effective in pest prevention and thus requires less pesticides than traditional
cotton. In my analysis, I expand the measurement of risk preferences beyond expected utility
theory to incorporate prospect theory parameters such as loss aversion and nonlinear probability
weighting. Using the parameters elicited from the experiment, I find that farmers who are more
risk averse or more loss averse adopt Bt cotton later. Farmers who overweight small probabilities
adopt Bt cotton earlier.

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Liu, E. (2008). Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01vh53wv73p (Original work published May 2008)
Working Papers