FARM SIZE, RISK AVERSION AND THE ADOPTION OF NEW TECHNOLOGY UNDER UNCERTAINTY *

Abstract

A model dealing with the role of risk aversion and credit constraints in the production decisions of farmers who grow both modern and traditional crops is described. The model can address such questions as: the effect of attitudes toward risk on factor use and output mix; differences between farms of different sizes; the implications of credit constraints on factor use and output mix; and effects on income distribution. Equations are provided that consider the optimal input of fertilizer, the optimal allocation of land, and the consequences of credit limitations. In the specific case of the modern crop versus traditional crop decision model, the analysis clarifies the effects of risk, risk aversion, farm size, and credit constraints on input use, output scale, and crop mix decisions. Results are shown to depend on various behavioral or technical rules that have already been established in empirical studies or on such generally accepted notions as the properties of utility functions. Overall, the analysis helps to explain conflicting evidence on patterns of production by farms of different sizes and, in some cases, refutes or qualifies common beliefs. Statistical data are provided. 20 references.