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Citation Information

Type Working Paper - WB Policy Research Working Paper
Title A conceptual model of incomplete markets and the consequences for technology adoption policies in Ethiopia
Issue 6681
Publication (Day/Month/Year) 2013
URL http://documents.worldbank.org/curated/en/638501468257056004/pdf/WPS6681.pdf
In Africa, farmers have been reluctant to take up new
varieties of staple crops developed to boost smallholder
yields and rural incomes. Low fertilizer use is often
mentioned as a proximate cause, but some believe the
problem originates with incomplete input markets.
As a remedy, African governments have introduced
technology adoption programs with fertilizer subsidies
as a core component. Still, the links between market
performance and choices about using fertilizer are poorly
articulated in empirical studies and policy discussions,
making it difficult to judge whether the programs are
expected to generate lasting benefits or to simply offset
high fertilizer prices. This paper develops a conceptual
model to show how choices made by agents supplying
This paper is a product of the Agriculture and Rural Development Team, Development Research Group. It is part of a
larger effort by the World Bank to provide open access to its research and make a contribution to development policy
discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org.
The authors may be contacted at dlarson@worldbank.org.
input services combine with household livelihood settings
to generate heterogeneous decisions about fertilizer use.
An applied model is estimated with data from a panel
survey in rural Ethiopia. The results suggest that adverse
market conditions limit the adoption of fertilizer-based
technologies, especially among resource-poor households.
Farmers appear to respond to market signals in the
aggregate and this provides a pathway for subsidies
to stimulate demand. However, the research suggests
that lowering transaction costs, through investments
in infrastructure and market institutions, can generate
deeper effects by expanding the technologies available to
farmers across all pricing outcomes.

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