Trouble with Zero: The Limits of Subsidizing Technology Adoption

In this project, we use a randomized control trial to test whether paying an initial price of zero (a 100% subsidy) relative to a non-zero, partially subsidized price affects long-run technology adoption among smallholder farmers. Subsidies can encourage short-run adoption, provide farmers with the opportunity to learn from experience, and potentially lead to increased adoption in the long-run. Conversely, long-run adoption may be lower if large initial subsidies result in a lower willingness to pay (WTP) later due to behavioral phenomena such as price reference dependence or price anchoring. The price anchoring effect may be particularly salient if the initial price paid is zero. To test the impact of subsidies on long-run adoption, we randomize farmers' initial prices for improved grain storage technology. One year later, we elicit willingness-to-pay from all farmers for a second round of technology purchases. We also collect data on relevant grain storage outcomes and farmers' experience with the technology to test for differences in the usage and perceived and actual benefits across subsidy levels.