Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China

The slow diffusion of new technology in the agricultural sector in less developed countries has long been a puzzle to 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 adopting genetically modified Bt cotton seed in place of traditional cotton seed in the 1990s. Bt cotton has been found to be effective in pest prevention, which suggests that farmers planting Bt cotton should reduce their use of pesticides. In my analysis, I expand the measurement of risk preferences beyond expected utility theory to incorporate prospect theory parameters such as loss aversion and probability weighting. Using the parameters elicited from the experiment, I find that farmers who are more risk averse or more loss averse adopted Bt cotton later. Among those who did adopt Bt cotton, more risk averse or less educated farmers continue to use inefficiently high amounts of pesticides. Therefore, they do not reap all the benefits of this new technology and potentially subject themselves to unnecessary health risks.