Category Archives: Policy

335. Behavioural economics and adoption of agricultural innovations

Behavioural economics has become a thriving field of research over the past decade or so, but research by agricultural economists on farmers’ behaviour when adopting new practices has been going on for over 60 years. What is similar and different between these two fields of research?

I was listening to a presentation by David Zilberman from the University of California, Berkeley at a conference a few years ago, and he made a comment along the lines that agricultural economists had been studying behaviour for a long time before behavioural economics became popular. He was thinking about the large body of research on farmers’ adoption on new practices and technologies.

When I was putting together a recent special issue of Applied Economic Perspectives and Policy on adoption of agricultural innovations, I remembered David’s comment and thought that a paper about this would be a good inclusion. About that time I happened to visit the University of Alberta, and a conversation about this with Maik Kecinski (now at University of Delaware) led to a team of young economists (plus a not-so-young one: me) working together. The resulting paper, “Agricultural Adoption and Behavioral Economics: Bridging the Gap” by Streletskaya et al., is now out and is open access.

To get a brief overview of the paper, you could listen to a conversation with one of the co-authors, Leah Palm-Forster, who happened to be in Perth for the AARES conference last month, which luckily took place just in time to avoid most of the travel shut downs for Covid-19. My conversation with Leah is available as an episode of the AEPP podcast series.

The paper covers a lot of ground. Here I’ll just comment on some of the similarities and differences between the two fields of research. Clearly, both fields are interested in behaviour, both recognize the influence of individual characteristics, preferences, and beliefs on decision-making, and both study economic decisions. But they tend to ask somewhat different questions. Quoting from the paper:

“Agricultural adoption investigates which factors drive or inhibit uptake within a population over time, without necessarily seeking to identify and model behavioral mechanisms that influence adoption. Behavioral economics, on the other hand, seeks to identify and explain behavior that departs from what is predicted by traditional economics through the use of new theories and models of human behavior.”

“Furthermore, agricultural adoption research traditionally has highlighted the role of extrinsic factors such as social, economic, and political context in driving adoption. Behavioral economics, on the other hand, focuses on broadly unpacking the “black box” of human decision making and explores how human cognition and the manner in which tastes and preferences are formed drive decision-making, and how factors such as biases and other social influences impact economic behavior.”

“Agricultural adoption often analyzes field data available at the plot, county, regional and national levels for different types of producers in order to obtain insights about the drivers of new technology diffusion over time and adoption patterns across different farming populations. In the behavioral economics domain, … many laboratory and field experiments rely on smaller samples and consist of cross-sectional data.”

So, there are quite a few differences. But they don’t have to be different. These differences have just evolved organically, largely reflecting the different questions that the researchers were asking.

Researchers working on agricultural adoption are increasingly looking towards behavioural economics for ideas and methods, but I reckon there is also unrealised scope for cross-fertilisation in the other direction. I suspect that many behavioural economists don’t even realise that there is this other big body of research generating knowledge that is relevant to what they do.

Further reading

Streletskaya, N.A., S.D. Bell, M. Kecinski, T. Li, S. Banerjee, L.H. Palm-Forster, and D.J. Pannell. 2020. Agriculture Adoption and Behavioral Economics: Bridging the Gap. Applied Economic Perspectives and Policy 42(1), 54-66.

333. Reducing bushfire risks

All the world has seen media coverage of the extraordinary fires that Australia has endured this summer. They sparked an intense discussion and debate about what Australia should do to reduce bushfire risks going forward. What does our economic modelling of fire management say about that?

I had a direct stake in the fires. We have a small cabin in a coastal town an hour north of Perth, and before Christmas we had about a week of temperatures above 40°C (104°F), and a big fire threatened the town. It got to the point where they evacuated everybody, but thankfully the weather improved just enough and just in time for the firefighters to get it under control.

Over the past 8 years, I’ve been involved in a number of projects looking at the economics of bushfire risk mitigation in different contexts. We’ve done case studies in four Australian states (Western Australia, South Australia, Victoria, New South Wales) and in New Zealand.

The different studies analysed different combinations of fire management options. The one common element in all the studies was prescribed burning to reduce fuel loads, but in particular cases we also looked at land-use planning to exclude assets from high-risk areas, retrofitting of houses to make them more fire-resistant, fire breaks, and community education.

It was a mix of research and consulting projects, and some of it still needs to be published.

We found that the economics of bushfires are really complex and data-intensive, and often there is a lack of data to do a bullet-proof analysis. In some cases, we met some of the data needs using sophisticated fire simulation models, but in others, we relied on data synthesis and expert judgments.  Despite the variations in context and methods, we did learn some pretty clear lessons across the various analyses.

The results for prescribed burning were somewhat variable in different contexts, but overall, we found that the long-run benefits of prescribed burning tended to outweigh the costs in most cases.

Interestingly, though, we found that prescribed burning leads to reductions in average losses that are modest relative to the overall losses due to fires. These modest reductions in losses are worth pursuing – they exceed the costs of prescribed burning – but it means that we need to have realistic expectations about what prescribed burning can do for us. Especially in extremely bad (“catastrophic”) fire conditions, losses can still be large, even with the best possible prescribed burning strategy in place.

One of the questions we looked at was whether prescribed burning should be done close to properties or more distantly. Closer to properties has higher benefits, because it increases the chance that a recent prescribed burn will block the passage of a bushfire. But closer to properties also has higher costs, because of the need for additional fire-fighting crews and equipment to reduce the risk of prescribed burns escaping and doing more damage than they prevent. In a detailed analysis of this (Florec et al. 2019), we found that the costs of burning close to houses outweighed the benefits.

In the analysis we did for the Perth Hills, we found that strong land-use planning was the most cost-effective strategy. While it is easy to see the sense in that, it comes up against the reality that some people especially like to live in locations where the fire risk is especially high. We didn’t factor in the likely transaction costs to government in trying to impose a policy that a group of people is opposed to.

Another interesting finding was that a broad policy of retrofitting houses to reduce their likelihood of burning was not economically efficient. Such a policy imposes substantial costs on a large number of houses to avoid the loss of a much smaller number of houses, and we found that the numbers just don’t stack up. Interestingly, new houses in bushfire-prone areas of Western Australia are now required to meet high standards of fire resistance.

Finally, in one case where we had access to a fire simulation model, we looked at possible impacts of climate change on future losses from fires (in 2030 and 2090). In brief, the additional losses due to climate change were large, potentially very large. In the media discussions during and following the recent fires, some politicians were suggesting that bushfire risk is not a reason to pursue stronger policies to mitigate climate change; all we need to do is a better job of prescribed burning. While there certainly can be benefits from prescribed burning, our analysis shows that there is no way increased prescribed burning could come close to offsetting the worsening fire risk from even modest climate change. Indeed, increasing prescribed burning may not even be feasible following climate change, as it narrows the window of time within which prescribed burning can be done without excessive risk.

From a bushfire perspective, Australia would have a lot to gain from effective international action to mitigate climate change. This suggests that we should be playing a stronger role in the global climate policy process.

Further reading

Florec, V., Burton, M., Pannell, D., Kelso, J. and Milne, G. (2019). Where to prescribe burn: the costs and benefits of prescribed burning close to houses, International Journal of Wildland Fire https://doi.org/10.1071/WF18192

332. Farmer behaviour and agricultural policy

An understanding of farmers’ adoption of new practices is central to the design of effective and efficient agricultural policies. Aspects of agricultural policy that can be enhanced by good information about adoption include the design of the policy, the targeting of policy effort, and the assessment of additionality. 

In PD330 I advertised a new Special Issue on adoption of agricultural innovations in the journal Applied Economic Perspectives and Policy. There is an audio interview with me about the Special Issue available here.

One of the papers, by Roger Claassen and me, focuses on the relevance to agricultural policy of understanding farmers’ decisions about taking up new practices.

One simple reason for this relevance is that much agricultural policy is concerned with getting farmers to do something they are not already doing or would not otherwise do. Examples of such policies include the following:

  • Programs of agricultural extension to encourage farmers to adopt a new technology that is believed to be more productive than the existing technology farmers are using (e.g., a higher-yielding crop variety);
  • Programs that pay farmers to adopt a practice that generates public benefits (such as protecting or planting vegetation that provides habitat for wildlife);
  • Policies that fund agricultural research, with the intent of generating information or technologies that will be beneficial for farmers or the community; and
  • Policies that use regulations to constrain the behaviour of farmers (such as regulations on clearing of native vegetation).

Since all these policies are about influencing the behaviour of farmers, of course it makes sense that their design and implementation could be enhanced if the designers had a good understanding of what influences the behaviour of farmers. Sometimes policy makers do take this seriously, but not always. I’ve been critical of Australian agri-environmental policies, for example, for often being making overly optimistic assumptions about what farmers will do if we just provide them with some information or pay them a little bit.

In practice, some practices are more attractive to farmers than others. Zero till is used by about 90% of Western Australian farmers, but a practice like variable-rate precision agriculture is used by only a minority. Any one practice is more attractive to some farmers than to others due to varying local conditions, such as rainfall or soil types. Being able to predict variations in adoption would be very helpful to policy makers for targeting their resources. Having a sense of which practices can potentially be adopted, and where, is one of the factors that ought to influence where policies like extension or incentive payments are applied.

Another policy concept that is tangled up with farmer behaviour is additionality. As we say in the paper:

A conservation action (and the resulting environmental gain) that is supported by a payment is additional if the farmer would not have taken the action if he or she had not received the payment. Environmental gains that flow from nonadditional actions cannot be attributed to the incentive program.

If the additionality of a proposed agri-environmental payment scheme is too low, it’s not worth running the scheme. Most farmers were going to adopt the practice anyway, so any incentive payment to them is just a gift, making no difference to environmental outcomes. Policies to promote some practices have high additionality (e.g. filter strips or cover crops in the U.S.) while others have much lower additionality (e.g. conservation tillage in the U.S.).

Assessing additionality is essentially about predicting behaviour. In fact, for programs that aren’t in place yet, assessment of additionality required two predictions about behaviour: what will farmers do if the program does offer them the proposed incentive scheme, and what will they do if there is no incentive payment scheme. The difference between those two predictions tells you the additional change that is attributable to the scheme.

Even assessing an incentive scheme that is already well established requires a sort of prediction. You can observe what farmers are doing with the scheme in place, but to assess additionality you still need to estimate what they would have done in the absence of the scheme.

For all these reasons, an ability to understand and predict farmers’ adoption of new practices is critically important to agricultural policy makers if they want their policies to be effective and efficient.

Further reading

Pannell, D.J. and R. Claassen. 2020. The Roles of Adoption and Behavior Change in Agricultural Policy. Applied Economic Perspectives and Policy 42(1), 31-41.

330. Adoption of agricultural innovations Special Issue

I’m the guest editor for a new Special Issue of the journal Applied Economic Perspectives and Policy. The theme of the issue is “Adoption of Agricultural Innovations” and it includes 11 papers by some of the world’s leading researchers on this topic.

There is an audio interview with me about the Special Issue available here.

The papers are intended to provide reviews or syntheses of key issues related to farmers’ adoption of new practices and technologies. Each paper focuses on a particular aspect of the literature, and the collection as a whole provides an excellent introduction to this enormous body of research.

A particularly nice feature is that all the papers in the issue are open access, meaning that anybody can read them without needing a subscription to the journal. You can access the issue here.

You can hear a brief interview with me providing background and an overview of the Special Issue on the journal’s web page for the issue. As of late Feb 2020, it is the second item in the list under the heading AEPP Podcast.

The first item in that list is another interview related to the Special Issue. In that one I interview Leah Palm-Forster about one of the papers that she and I helped to co-author, called “Agricultural Adoption and Behavioral Economics: Bridging the Gap”. In that paper we talk about the similarities and differences between those two related bodies of research literature, and about possible connections that could be made between them.

Further reading

Here’s a list of all the articles in the issue.

Pannell, D.J. and Zilberman, D. 2020. Understanding adoption of innovations and behavior change to improve agricultural policy. Applied Economic Perspectives and Policy 42(1), 3-7.

Norton, G.W. and J. Alwang. 2020. Changes in Agricultural Extension and Implications for Farmer Adoption of New Practices. Applied Economic Perspectives and Policy 42(1), 8-20.

Heiman, A., Ferguson, J. and D. Zilberman. 2020. Marketing and Technology Adoption. Applied Economic Perspectives and Policy 42(1), 21-30.

Pannell, D.J. and R. Claassen. 2020. The Roles of Adoption and Behavior Change in Agricultural Policy. Applied Economic Perspectives and Policy 42(1), 31-41.

Chavas, J.-P. and C. Nauges. 2020. Uncertainty, Learning and Technology Adoption in Agriculture. Applied Economic Perspectives and Policy 42(1), 42-53.

Streletskaya, N.A., S.D. Bell, M. Kecinski, T. Li, S. Banerjee, L.H. Palm-Forster, and D.J. Pannell. 2020. Agriculture Adoption and Behavioral Economics: Bridging the Gap. Applied Economic Perspectives and Policy 42(1), 54-66.

Weersink, A. and M. Fulton. 2020. Limits to Profit Maximization as a Guide to Behavior Change. Applied Economic Perspectives and Policy 42(1), 67-79.

Montes de Oca Munguia, O. and Llewellyn, R. 2020. The Adopters Versus The Technology: Which Matters More When Predicting or Explaining Adoption? Applied Economic Perspectives and Policy 42(1), 80-91.

Huffman, W.E. 2020. Human Capital and Adoption of Innovations: Policy Implications. Applied Economic Perspectives and Policy 42(1), 92-99.

Llewellyn, R. and B. Brown. 2020. Predicting adoption of innovations by farmers: how is it different in smallholder agriculture? Applied Economic Perspectives and Policy 42(1), 100-112.

Rola-Rubzen, F., T.R. Paris, J. Hawkins and B. Sapkota. 2020. Improving Gender Participation in Agricultural Technology Adoption in Asia: From Rhetoric to Practical Action. Applied Economic Perspectives and Policy 42(1), 113-125.

327. Heterogeneity of farmers

Farmers are highly heterogeneous. Even farmers growing the same crops in the same region are highly variable. This is often not well recognised by policy makers, researchers or extension agents.

The variation between farmers occurs on many dimensions. A random sample of farmers will have quite different soils, rainfall, machinery, access to water for irrigation, wealth, access to credit, farm area, social networks, intelligence, education, skills, family size, non-family labour, history of farm management choices, preferences for various outcomes, and so on, and so on. There is variation amongst the farmers themselves (after all, they are human), their farms, and the farming context.

This variation has consequences. For example, it means that different farmers given the same information, the same technology choices, or facing the same government policy, can easily respond quite differently, and they often do.

Discussions about farmers often seem to be based on an assumption that farmers are a fairly uniform group, with similar attitudes, similar costs and similar profits from the same practices. For example, it is common to read discussions of costs and benefits of adopting a new farming practice, as if the costs and the benefits are the same across all farmers. In my view, understanding the heterogeneity of farm economics is just as important as understanding the average.

Understanding the heterogeneity helps you have realistic expectations about how many farmers are likely to respond in particular ways to information, technologies or policies. Or about how the cost of a policy program would vary depending on the target outcomes of the program.

We explore some of these issues in a paper recently published in Agricultural Systems (Van Grieken et al. 2019). It looks at the heterogeneity of 400 sugarcane farmers in an area of the wet tropics in Queensland (the Tully–Murray catchment). These farms are a focus of policy because nutrients and sediment sourced from them are likely to be affecting the Great Barrier Reef. “Within the vicinity of the Tully-Murray flood plume there are 37 coral reefs and 13 seagrass meadows”.

Our findings include the following.

  • Different farmers are likely to respond differently to incentive payments provided by government to encourage uptake of practices that would reduce losses of nutrients and sediment.
  • Specific information about this can help governments target their policy to particular farmers, and result in the program being more cost-effective.
  • As the target level of pollution abatement increases, the cost of achieving that target would not increase linearly. Rather, the cost would increase exponentially, reflecting that a minority of farmers have particularly high costs of abatement. This is actually the result that economists would generally expect (see PD182).

Further reading

Van Grieken, M., Webster, A., Whitten, S., Poggio, M., Roebeling, P., Bohnet, I. and Pannell, D. (2019). Adoption of agricultural management for Great Barrier Reef water quality improvement in heterogeneous farming communities, Agricultural Systems 170, 1-8. Journal web page * IDEAS page