Risk preferences and poverty traps in the uptake of credit and insurance amongst small-scale farmers in South Africa

We use a series of framed experimental games to test the role of access to credit and insurance on farm technology uptake with small-scale farmers in South Africa. Using Cumulative Prospect Theory ‘CPT’, we assess how insurance impacts technology uptake given risk preferences. Our findings suggest that risk aversion is linked to lower uptake of the uninsured and insured technology, while loss averse farmers are more likely to adopt technology bundled with insurance. In line with literature on poverty traps we further find that wealth is critical in uptake of technology, with cumulative experimental income and being below the mean income in terms of real-life income stifling investment in insured and uninsured technology options. Overall, we find that insurance is not sufficient to counter the behavioural factors linked to asset constraints and risk preferences that suppress modern farm technology uptake.