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Abstract
This study provides empirical evidence on the effects of production risk on smallholder
farmers’ adoption of farm technology, using plot-level data collected from two semi-arid
districts in Kenya, Machakos and Taita Taveta. Using Mundlak’s approach (1978), the study
found that factors such as yield variability and the risk of crop failures indeed affect
technology adoption decisions in low-income, rainfed agriculture. However, the direction and
magnitude of effects depend on the farm technology under consideration. The results explain
why poor farm households in rainfed and risky production environments are reluctant to adopt
new farm technologies that could improve production: it is because the technologies involve
enormous downside risks. This result underscores the fact that productivity gain is a
necessary, but not sufficient, condition to attract farmers to adopt new technologies and
agricultural innovations.