Development Economics II: Plan
Development Economics II: Plan
1. Technology adoption (MK)
2. Agricultural contracts & markets
(JS)
3. Social networks (MK)
4. Political Economy (MK)
5. Conflict (MK)
6. Corruption (JS)
7. Education (TB) Assignments
- Mock referee report
- Term paper
Deadline: 31 January 2014
Stockholm Doctoral Course Program in Economics
Development Economics II — Lecture 1
Technology Adoption
Masayuki Kudamatsu
IIES, Stockholm University
30 October, 2013
Motivations
Adopting more productive
- production technology ⇒ Poverty reduction Examples for agriculture:
- High-yielding seeds varieties, fertilizer Examples for health:
- insecticide-treated bed nets, contraception methods, deworming
BUT many poor people do not
- adopt such technologies (especially in Africa)
1. Reasons for non-adoption
2. Duflo, Kremer, & Robinson (2011)
3. Suri (2011)
1. Reasons for non-adoption
For more detailed literature survey,
- see Foster & Rosenzweig (2010) and Jack (2013).
a. It’s actually unprofitable
Duflo-Kremer-Robinson (2008)
- Ask Kenyan farmers to use fertilizer
- on a randomly chosen plot of their own Fertilizer does increase yields, only
- if appropriate amount is used But harvest labor cost ignored
- (Foster & Rosenzweig 2010)
b. Profitable on average, but
heterogenous across people
So non-adoption is rational for
- those farmers who would lose Suri (2
c. Lack of information
- profitability
Two types of information
- how to use properly
- Learning by doing
- Learning from friends
- Evidence: mixed (Conley & Udry
- 2010: yes; Duflo et al 2006: no) Likely depends on type of technology
(e.g. not new or easy to use)
Also who has information and the- incentive to disseminate (BenYishay
- reason for non-adoption, one-shot subsidy will be effective Some evidence on this:
- Dupas (2013) for antimalarial bed
- nets in Kenya Matsumoto et al. (2011) for hybrid
- maize seeds & fertilizer in Uganda Bryan, Chowdhury, and Mobarak
- (2011) for seasonal migration in Bangladesh
d. Lack of education
Access to information
- Ability to learn
- Foster & Rosenzweig (1996): return >to new technology is higher for the educated But not crystal-clear
e. Lack of insurance / credit
New technology is risky ⇒ Need
- insurance New technology may involve the
- fixed cost upfront ⇒ Need credit Difficult to disentangle one from the
- other Gine & Yang (2009): RCT on rainfall
- insurance
They find insurance reduces
f. Behavioral reasons
Inattention to the important aspect
- of how to use new technology (Hanna et al. 2011) Self-control (Duflo, Kremer, &
- Robinson 2011)
cf. Banerjee & Mullainathan (2010)
For behavioral issues in development in general, see Karlan & Appel (2011)
cf. Quick notes on manufacturing
/ macroVery under-studied topics
- An exception: Bustos (2011) on
- impact of tariff reduction For macro, starting point is
- Acemoglu, Aghion, and Zilibotti (2006)
2. Duflo, Kremer & Robinson
(2011)
Does the self-control problem
- explain why Kenyan farmers fail to use fertilizer?
Earn income at harvest
- Fertilizer needed after planting
- Credit-constraint ⇒ Need to save for
- buying fertilizer But tempted to consume the saving
before fertilizer is needed
- 2
Present-biased preference ( β < 1)
u (c ) + β[δu(c ) + δ u (c ) + ...]
t t t
- 1 +2
⇒ Procrastinate profitable actions w/
immediate cost and distant benefit Sophisticated vs Naive
- cf. O’Donoghue-Rabin (1999)
2. Duflo, Kremer & Robinson
(2011) (cont.)
- Right after harvest, offer farmers w/
Evaluate SAFI by RCT
- fertilizer voucher at a small discount (ie. free delivery)
- (ie.
Use the RCT results on SAFI to
evaluate counter-factual policy
large subsidy for fertilizer purchase, as in Malawi) Evaluate counter-factual policies
Too costly (e.g. big subsidies)
RCT cannot evaluate every policy
- Politically infeasible
- An alternative: calibration /
- structural estimation with RCT on
(cf. Todd & Wolpin 2006)
feasible policies
1. Build a model of behavior
2. Use treatment group outcomes to
calibrate/estimate the model
3. Validate the model against control group outcomes
4. Predict outcomes under alternative Model: Players (3 types)
γ of population
1. Always patient:
2. Always impatient: ψ
3. Stochastically impatient: φ
- (cf.
γ + ψ + φ = 1
γ and ψ farmers needed for calibration purpose) Model: Preference
Every player is present-biased, but its extent differs:
1. Always patient ( β < 1) H T
� u + β u
t H
τ τ =t+1β < β
2. Always impatient ( L H ) T
� u u
t + β L
τ3. Stochastically impatient
t
w/ prob. 1 − p and over estimate p: ˜ p > p
τ
u
τ =t+1
�
L T
w/ prob. p u
Model: Preference (cont.)
τ
u
τ =t+1
�
t + β H T
u
- β
Interpretation of stochastically impatient agents:
- Partially naive
- Consumption opportunity (e.g. party) occasionally arrives
Receive income x > 2 from harvest
- Decide how much to buy fertilizer,
- z
∈ {0, 1, 2}
Discrete choice for tractability and • using experimental results on return to fertilizer
f 1
Price per unit: p
- ⇐ Sample farmers use either no
Utility cost f incurred if z > 0
fertilizer or a lot
- f > 0 creates procrastination in this
- In this lecture, for simplicity, set return
Also decide how much to save
- to saving R = 0
- R: relevant only for SAFI with ex ante
choice of timing, which is skipped due to time constraint in this lecture ⇒ Only reason to save is to buy fertilizer at period 2 Model: Period 2 (planting)
- Decide how much to buy fertilizer, z ∈ {0, 1, 2}
- Price per unit: p f 2
- Utility cost f incurred if z > 0
- No borrowing possible
⇐ Consistent w/ the report by sample
farmers- Fertilizer bought at period 1: cannot be resold
⇐ Consistent w/ very high transaction
costs in the study area (fn. 4) Model: Period 3 (2nd harvest)
Receive income from harvest, Y (z)
- Denote return to additional unit of
- fertilizer by
y (1) ≡ Y (1) − Y (0)
- y (2) ≡ Y (2) − Y (1)
- f (2) 1 > β
H
3 (4)
1
y (2) <
L
β
3 (3)
1
y (2) >
3
Model: Parametric assumptions
1
y (1) >
L
f > β
L
y (1) > 1 + f (1) 1 + β
H
β
(consistent w/ experimental evidence on return to
Analysis
Solve the model for p
a. = p = 1 (control group) f 1 f 2
p
b. < 1, p = 1 (SAFI treatment) f 1 f 2
p
c. = 1, p < 1 where period 2 f 1 f 2
discount is unanticipated in period 1 by backward induction
⇐
Sophisticated present-biased players: fully anticipate their present-biased behavior in the Role of SAFI in this model
Induce stochastically patient
- farmers with β in period 1 and β
H L
in period 2 to buy fertilizer They would otherwise procrastinate
- & end up not buying fertilizer in period 2
a. Behavior under p
f 1 = p f 2
= 1
= 1 to z = 2
- All farmers prefer z
- β L y (2) < β H y (2) < 1 = p ft by (3)
- Empirically consistent (Appendix Table 2, panel D: y (2) < 1)
⇒ Look at whether each farmer
prefers z = 1 or z = 0 below
a. Behavior under p
f 1 f 2 = p = 1 (cont.)
γ farmers (always patient)
- H
Period 2: Prefer z = 1 to z = 0
β y (1) − f > 1 by (1)
- = 0 & save 1 to
- z = 1 & save 0
Period 1: Prefer z
- β < 1 + f H f
1
- ⇒ Save at period 1 & buy 1 unit of
fertilizer at period 2
a. Behavior under p
f 1 = p f 2
= 1 (cont.) ψ farmers (always impatient)
- Period 2: Prefer z = 0 to z = 1
> β L y (1) by (2)
- 1 + f > 1 + β L f >Period 1: Prefer z = 0 & sa
- Better to consume now than later
( β L < 1) ⇒ Never buy fertilizer
a. Behavior under p
f 1 f 2 = p = 1 (cont.)
φ farmers in Period 2
If saved 1 in period 1: z = 1 if β
2 = β H
2 L
z = 0 if β = β
(by the arguments above) If didn’t save 1 in period 1: z
= 0
a. Behavior under p
f 1 f 2 = p = 1 (cont.)
φ farmers in Period 1
- 1 L
If β = β , save 0 & z = 0
Buy fertilizer at period 1: • − 1 − f + β (1) < x by (2) x L y Save 1 to buy fertilizer at period 2 (in • case of β = β ): 2 H x − 1 + β (y (1) − f ) < x by (2) L
a. Behavior under p
f 1 f 2 = p = 1 (cont.)
- 1 = β H in period 1,
If β
Buy fertilizer in period 1 (which
- dominates consume x, by (1)): − 1 − f + β (1) x H y Buy fertilizer in period 2 by saving 1: • x − 1 + β [˜ p (y (1) − f ) + (1 − ˜ p )] H
⇒ The latter dominates w/ sufficiently high ˜ p (“projection bias”, which is
a. Behavior under p
f 1 f 2 = p = 1 (cont.)
Summary of optimal behavior
φ farmers buy fertilizer at period 2 iff β = β = β
1
2 H . Therefore:
2
γ + φp farmers: buy 1 fertilizer at
- period 2
2
φ(1 − p ) + ψ farmers: do not buy
- fertilizer
(SAFI)
If p is close enough to 1,
f 1
Patient farmers: still prefer z = 1 to
- z
= 2 by (3) Impatient farmers: still prefer z = 0
- to z = 1 by (2)
b. Behavior under p
f 1
< 1, p
f 2= 1 (SAFI) (cont.)
1
= β
H
now prefer z = 1 at period 1 if p
- φ farmers with β
- f < 1 + β H f (if ˜ p
- Subsidy can be very small
f 1
→ 1) or p
f 1
< 1 − (1 − β
H
)f
⇐ No need to compensate the foregone
b. Behavior under p
f 1 < 1, p f 2
= 1 (SAFI) (cont.) ⇒
Adoption rate w/ SAFI: γ + φp
c. Unanticipated discount at
period 2
- 1 H
For φ famers with β = β , β = β
2 L
to buy fertilizer in period 2, we need p y < β (1) − f
f 2 L
which is smaller than 1 − (1 − β )f
H
if β is sufficiently low
L ⇐ Need to compensate the foregone
consumption (ie. 1 − β L y (1))
⇒ Same level of discount at period 2
as SAFI: no effect To reach same adoption rate as
- SAFI, p f 2 needs to be very low (e.g. 50% discount)
Season 1: Offer randomly selected
- farmers with SAFI Season 2: Offer randomly selected
- (stratified by season 1 treatment status)
farmers with
1. SAFI
2. Free delivery at planting
3. Unexpected 50% discount at planting Main results (Table 3)
Fraction of farmers using fertilizer for SAFI vs control
- (difference significant at 1%)
45 % vs 34 % in season 1
- (difference significant at 10%)
38 % vs 28 % in season 2
Regression analysis confirms these
- findings (Table 4)
Beauty of RCT: OLS is unbiased
- Once control for covariates, this is
- no longer true (still consistent, though)
⇐ See Freedman (2008). Also Deaton (2010, p. 444); Imbens (2010, p. 411)
Report the estimated treatment
- effect both w/o & w/ covariates
Usage up by 9-10 % pt. (not
Free delivery at planting
- significant)
Size of impact significantly
- than SAFI (p-value 0.08)
smaller
- Usage up by 13-14 % pt.
50% discount at planting
- Size of impact similar to SAFI
Estimate the impact of heavy subsidization of fertilizer as in Malawi
a. Use some RCT outcomes to
calibrate the model
b. Validate the model against other
RCT outcomes
c. Predict outcomes under
(hypothetical) heavily-subsidized
a. Calibration
Obtain γ, φ, ψ, p from adoption rates
2 Control ( γ + φp ): 0.24
- SAFI treated ( γ + φp): 0.402
- 6
Control over 3 seasons ( γ + φp ):
- 0.14
⇒ γ = 0.14, φ = 0.69, ψ = 0.17,
p = 0.38
b. Model validation
- Never adopt over 3 seasons among control
- Simulated: ψ + φ(1 − p 2 ) 3 =
- Observed: 0.57
- ψ farmers never adopt because 1 + f > β
L
y (1)
(typo in the paper)
- y (1) ≤ 1.227 (Appendix Table 2)
y (1) ⇒ β L < 0.81
- If f → 0, 1 + f > β L
- Estimates from Laibson et al. (2007): around 0.7
If p
f 1
= p
f 2
= 1/3, the model predicts
- z
= 2 by γ + φp
2
= 24% of farmers
- By ineq. (3)
2
) = 76% of farmers
- z = 1 by ψ + φ(1 − p
- By ineq. (2) & (4)
- funds: 0.2 Amount of fertilizer used:
- 2*0.24+1*0.76 = 1.24
⇒ 0.2*0.67*1.24=0.166
Loss due to too much use of fertilizer y (2) − 1 = −0.525
- (Appendix Table 2)
0.525*0.24=0.126
- fertilizer y
(1) − 1 ∈ [0.15, 0.227] (Appendix
- Table 2)
⇒ In the range of 0.114 to 0.173
⇒ Net welfare gain: -0.119 to -0.178 (Table 5 (1))
Evaluate SAFI (Table 5 (2))
Cost of public funds
f 1
= 0.9
- Assume p
- 40% use fertilizer
- 0.2*(1-0.9)*0.40 = 0.008
Benefit
2
) farmers now use fertilizer
- φ(p − p
2
) ∈ [0.024, 0.037] ⇒ Net welfare gain: 0.016 to 0.029
- (y (1) − 1)φ(p − p
SAFI outperforms heavy subsidization To help stochastically impatient
- farmers to adopt fertilizer for sure When too much use of fertilizer
- hurts
Calibration: sensitive to parameter /
- functional form assumptions But several aspects of the model
- favor heavy subsidy
Low marginal cost of public funds • Heavy subsidy does induce impatient • farmers to use fertilizer No env. cost of fertilizer overuse
- SAFI outperforms laissez-faire if at
- least 24-40 % of farmers are
How to induce always impatient
- farmers to adopt?
⇐ Adoption rate under SAFI:
still below 50%
3. Suri (2011)
Take heterogenous treatment effect
- seriously One of the best job market papers
- in development in 2005/06
Can heterogeneous return explain why not all farmers in Kenya use the high average return production technology (hybrid maize & fertilizer)?
Some farmers may have negative
- return to such technology
⇒ No adoption is a fully rational
decision for them Data
Panel surveys of over 1200
- households in 1997 & 2004 Representative of rural
- maize-growing areas in Kenya (Figure 1)
cf. Duflo-Kremer-Robinson’s sample:
only Busia District in Western KenyaSome descriptive stats
Hybrid maize adoption rates: stable
- over sample period (Figure 2)
Hybrid maize available since 1960s
- ⇒ Lack of information unlikely to explain
non-adoption
Some descriptive stats (cont.)
Very few plant both hybrid and
- non-hybrid
⇒ Technology adoption is modeled as a binary choice
50% always adopt; 30% switch in
- and out of hybrid use over sample period (Table IID)
⇐ Crucial for estimation strategy Some descriptive stats (cont.)
- ⇐ Hard to impute the wage of family
Data on profits: unavailable
labor
Input costs: comparable across
- technologies except for fertilizer (Table IIB)
⇒ Estimate the yield function, not the profit function
- β
- α
- ε
i
t : Year fixed effect
it : Yield for farmer i in year t
it
i
it
h
t
= δ
it
in the following yield function y
i
We want to estimate β
Empirical strategy
- y
- δ
- h
it : Hybrid maize adoption indicator Empirical strategy (cont.)
By setting β i ≡ β + φθ i , α i ≡ θ i + τ i y = δ + β h + α + ε
it t i it i it
= δ + (β + φθ )h + (θ + τ ) + ε
t i it i i it
= δ + βh + τ + (1 + φh )θ + ε
t it i it i it
- i
τ : absolute advantage
- i
θ : comparative advantage
(orthogonal to τ by construction)
i Empirical strategy (cont.)
y = δ + βh + τ + (1 + φh )θ + ε
it t it i it i it
φ > 0: More productive farmers
- gain more from adoption φ < 0: Less productive farmers gain >more (comparative advantage) φ = 0: No heterogeneity in re
y = δ + βh + τ + (1 + φh )θ + ε
it t it i it i it
How to estimate φ and the
- distribution of θ ?
i
Below illustrate this in the case of 2
- periods, no covariates, & decision
1. Linearly project θ i on adoption
θ history (ie. decompose i into the parts correlated and uncorrelated with adoption) h h
θ = λ + λ + λ
i 1 i1 2 i2
h h
- λ + υ
3 i1 i2 i
� where θ = 0 (so that β is
- i i
average return & λ is a function of
2. Substitute θ
= δ
Empirical strategy (cont.)
i
into the yield equation y
- βh
- τ
- (1 + φh
- ε
it
- γ
- ξ
- γ
- γ
- φλ
i1
i2
h
5
i1
h
4
2
= δ
i2
y
i1
i2
h
3
h
t
i2
h
i1 + γ
h
1
i1 = δ
1 + γ
to obtain: y
it
i
)θ
it
i
it
2
it
5
i
it
h
i
i
= υ
it
ξ
1
3
= (1 + φ)λ
6
2
= (1 + φ)λ
γ
Empirical strategy (cont.)
1
= λ
4
γ
2
3
= (1 + φ)λ
3
γ
2
2 = λ
γ
1 = (1 + φ)λ 1 + β + φλ
where γ
- β + φλ γ
- φλ
- φυ
- τ
- ε
h
3. Regress y on h , h , h to it i1 i2 i1 i2
estimate γ’s by SUR
4. Estimate λ’s, β, and φ from the
estimated γ’s by minimum distance
5 unknowns, 6 equations
5. Predict θ i for each adoption history,
using estimated λ’s ˆ h h
θ = ˆ λ + ˆ λ + ˆ λ
i 1 i1 2 i2 Intuition behind this method
- 2
γ : difference in period-1 yields
between joiners & non-adopters Yield equation
- y
it = δ t + βh it + τ i + (1 + φh it )θ i + ε it
tells you that γ
2 is essentially
joiner’s θ (relative to non-adopters)
i Intuition behind this method (cont.)
- 5
γ : difference in period-2 yields
between joiners & non-adopters Yield equation
- y
= δ + βh + τ + (1 + φh )θ + ε
it t it i it i it
tells you that γ
5 is essentially
joiner’s φθ i (plus β) Intuition behind this method (cont.)
- 2
If γ > 0 and γ < 0, for example,
5
this means φ < 0 (as long as β is not too negative). But we don’t know β.
- We need more information. S
4 : difference in period-2 yields
γ
between leavers & non-adopters Yield equation
- y = δ + βh + τ + (1 + φh )θ + ε
it t it i it i it
tells you that γ is essentially
4
leaver’s θ
i Intuition behind this method (cont.)
- 1
γ : difference in period-1 yields
between leavers & non-adopters Yield equation
- y
= δ + βh + τ + (1 + φh )θ + ε
it t it i it i it
tells you that γ
1 is essentially
leaver’s φθ i (plus β) Intuition behind this method (cont.)
- 1 and γ
γ
5 then allow you to estimate
φ (and β)
i
Also estimate θ for always-adopters
from their yields (and refine the estimates for φ) Assuming φ also applies to
- non-adopters, recover
This method can be modified to
- allow (i) covariates in yield equation, (ii) more than 2 periods, and (iii) use of fertilizer as another adoption decision
ξ h
it ≡ υ i + φυ i it + τ i + ε it : uncorrelated w/
, h , h h adoption history (h i1 i2 i1 i2 ) Otherwise the estimated γ’s are
- biased By construction, υ is uncorrelated
- i
with adoption history h h θ = λ + λ + λ
i 1 i1 2 i2
h h
- λ + υ
3 i1 i2 i Identifying assumption (cont.)
ξ ≡ υ + φυ h + τ + ε
it i i it i it : uncorrelated w/
adoption history (h , h , h h )
i1 i2 i1 i2
- i
τ is safely assumed to be
uncorrelated
τ affects yield in the same way • i irrespective of adoption
- it
ε is uncorrelated with adoption
history?
ε is uncorrelated with adoption history?
it
- t
Shocks between t = 1 (1997) &
= 2 (2004) may affect both h i2 & ε
i2 Household structure controlled for
- Drop two HIV-prevalent districts from
- ⇒ Results stronger) the sample (
- it
Survey evidence suggests: h
largely driven by availability of seed & fertilizer, which is uncorrelated w/ Results
ˆ φ < 0 (Tables VIII)
- ˆ
- i
θ < 0 for non-adopters (Figure 5A)
⇒ + φθ
Return to hybrid (β i ): highest for non-adopters (Figure 5B)
⇒ Less productive farmers (θ < 0) i
who would gain more from adoption (φ < 0) DO NOT adopt hybrid maize
Results (cont.)
Non-adopters face huge cost of
- adoption (high cost of transport to fertilizer seller) (Table IX)
Price of hybrid seeds: fixed across
- Kenya until 2004
Very large IV estimates when * distance to fertilizer shop used as instruments (Table IV): refer to these non-adopters Results (cont.)
Adopters: return is high but smaller
- than non-adopters Switchers: small θ & return to
- i
hybrid around zero Nearly zero FE estimates (Table *
IIIA): refer to switchers Unresolved issues
How to reconcile
- Duflo-Kremer-Robinson and Suri? More generally, what are the
- relative contributions of different factors for non-adoption?
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