Aspirations, risk preferences, and investments in agricultural technologies

Abstract

We investigate the relationship between aspirations, risk preferences, and investment in agricultural technologies using data collected among cacao farmers in Ecuador. We first find that an inverted U-shaped relationship between the income aspirations gap and investments exists when considering relatively long-term investments (e.g., farm renovations) but not when considering relatively short-term investments (e.g., fertilizer use). Next, using lab-in-the-field experiments and survey instruments designed to elicit risk preferences, we show that the observed inverted U-shaped relationship is robust to the inclusion of risk preference parameters in our regression specification—a potentially important omitted variable in previous studies. Our empirical results are consistent with existing theory suggesting that aspirations that are ahead, but not too far ahead, of current levels provide the best incentives for investments in the future, and suggest the presence of psychological constraints to investments in agricultural technology.