Identifying the effects of market imperfections for a scale biased agricultural technology: Tractors in Nigeria

Abstract: Growths of mechanization service supply have been considered generally frictionless outside Africa South of Sahara (SSA). However, the dominance of large tractors that are sparsely populated in SSA countries like Nigeria today suggests significant imperfections in tractor hiring service market due to technology indivisibility and low spatial mobility. Empirically testing market imperfections for scale-biased technologies like tractors has been challenging, partly due to the difficulty of separating the effect of marginal technology adoptions from intensive technology adoptions that potentially generate scale effects. We fill this knowledge gap by applying covariate matching, ordinary propensity score matching, as well as generalized propensity score matching methods to Nigerian household data. Tractor hiring service market in Nigeria is found imperfect, potentially due to the supply-side constraints. The effect of this imperfection is also sizeable; in the case of Nigeria, overcoming this imperfection can potentially increase farm households’ income by as much as 30%. This effect is from the marginal adoption of tractors alone, even without the potential scale effects from intensive tractor use upon adoption