Heterogeneous Gains From Agricultural Innovation Adoption: The Role Of The Price Effect In Peru

In conditions of poor soil fertility and increasing importance of global value chain, agricultural extension projects have been one of the main channel to increase farmer’s production and income. In the literature assessing the return to these innovations, prices received by farmers for their production are usually assumed to be homogeneous. We dispute this over-simplification: prices and production levels in developing countries are often jointly determined. The analysis relies on an extension programme in the Peruvian highlands, where the main income source is the dairy sector characterised by a highly segmented market. A simple theoretical model is developed to show how the segmented market conditions, i.e. price levels, induce non-linear return to the investment and affect the incentive to innovate. The econometric analysis confirms the propositions derived from the model: producers that were not included in the formal market at baseline, but close to it, have more intensively innovated. The consequence of this investment is a higher price increase than the rest of the population, creating heterogeneous impact of the programme and social mobility.

Issue Date:
Aug 29 2017
Publication Type:
Conference Paper/ Presentation
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 Record created 2017-08-01, last modified 2018-01-23

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