A behavioural economic analysis of agricultural investment decisions in Uganda
Farmers in developing countries operate in extraordinarily hazardous environments. Policies that aim to increase agricultural productivity in such environments – policies on agricultural lending, research and extension, rural infrastructure, crop insurance, and so forth – need to take into account how farmers take agricultural investment decisions. However, crucial elements of their decision-making habits that relate to risky choices remain ill-understood. We use behavioural economic research methods to advance our understanding in a number of important ways.
The research we do is new, and has potentially far-reaching implications for understanding the behavioural constraints on inclusive agricultural growth in hazardous environments, and thus for an effective policy response. We have selected a case study country, Uganda, where (a) such growth due to remarkable farmer investment behaviour has been achieved, and (b) despite this, unrealised potential for productivity growth still characterises most of the agricultural sector, related to low adoption rates of new technologies, ‘thin' and isolated rural markets, the failure of farmer cooperatives, among many other factors.
In order to elucidate the motivation of farmers' investment behaviour, we use economic experiments, in which participants respond to real monetary incentives. This enables us to study biases, as well as the role of social interaction, in risky choice. We then relate the experimentally obtained data to data on actual investment behaviour.
International Food Policy Research Institute (IFPRI), Kampala