Agricultural Input Decisions in the Presence of Complementarities: A Rational Inattention Model

Abstract

This paper investigates an empirical puzzle in technology adoption: the observation that farmers in Sub-Saharan Africa who have successfully adopted modern agricultural inputs on their farms tend to spread synergistic inputs across plots rather than combining them. Existing theories are unable to account for this behavior, because they focus on explaining adoption decisions of individual inputs and abstract from the complexity of these decisions in the presence of complementarities. This paper proposes a novel explanation that is based on a rational inattention channel. In the model, combining modern inputs offers potential synergy effects, but cultivation practices have to be adapted to specific field and seasonal conditions in order to achieve optimal outcomes. By devoting attention to their plots, farmers can reduce uncertainty about optimal practices and thereby increase the expected return of joint input use. I show that taking into account a limited attentional capacity can explain why farmers may rationally decide not to combine complementary inputs on the same plots or abstain from adopting profitable inputs altogether. The identified mechanism is in line with evidence on the limits of human cognition and generates testable predictions that coincide well with empirical patterns in agricultural input use.