Vulnerability, risk management and agricultural development
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This paper examines the relationship between agricultural development, vulnerability to
shocks and the risk management practices of small farmers in developing countries.
Economic thinking on technology adoption has long been influenced by a model of a rational
but risk-averse farmer. Experimental evidence suggests that aversion to downside risk is a
better representation of human preferences than aversion to risk per se. The prescribed
solution, no matter what kind of risk the farmer is concerned about, is to offer insurance.
Recent field experiments indicate that other behavioral considerations play a role as well,
such as impulse purchases and vulnerability to marketing campaigns. This may explain why
adoption of agricultural innovations is often gradual and displays patterns consistent with
peer effects through social networks and geographical proximity.