The Effect of Bt Corn Adoption and Risk Aversion on Farmer Investment Decisions
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Research has shown Bt technology improves mean yield and risk exposure of farmers. This paper investigates whether improvement in risk exposure from adoption of Bt and stacked trait corn has improved farmers’ desire to invest in their farm. Farmer risk perception is an important piece of this response and is modeled here in a framework that incorporates loss aversion as a function of farmer wealth. Results show that single trait Bt farmers had a significant mean yield increase while downside risk reduction was stronger for the stacked variety adopters. Stacked adopters also had greater investment response than other farmers establishing the importance of loss aversion in farming decisions. This paper adds to current research on Bt corn, other ways by which Bt technology may affect farmers and the wider economy. Particularly in developing countries where policies to encourage investment is important, this paper adds tools that help understand how to create such policies more effectively.