Risk Preferences, Contracts and Technology Adoption by Broiler Farmers in China

Abstract

This study expands on existing research on farmers’ risk preferences and technology adoption, with novel analysis of the relationship between risk preferences, production contract participation, and technology investment levels and adoption time. Our analysis uses farm-level data from 345 Chinese broiler growers and an instrumental variables strategy to address the potential endogeneity of the contracting decision. Both the distance of the farm to the nearest broiler business and the distance of the farm to the nearest market for broiler sale are used as instrumental variables for the contracting decision. Results indicate that farmers with higher risk aversion are more likely to participate in contracts, less likely to adopt new technology, adopt technology later, and invest less in technology. In the subsample of contract farmers, contracts with longer terms, lower upfront deposit requirements and higher cost sharing with enterprises for technology adoption may make farmers more likely to adopt technology, to adopt technology early and to invest more. These findings jointly suggest that contract terms that help alleviate credit constraints may be more effective at promoting technology adoption in developing countries.