Abstract:

This dissertation consists of three applied economic studies on China. In winter 2006, I conducted a survey and field experiment to elicit the risk preferences of 320 Chinese farmers, who faced the decision of whether to adopt genetically modified Bt cotton a decade ago. The first two chapters use this dataset to examine the relationship between elicited individual risk preferences and farming decisions. The last chapter provides a meta-analysis of existing literature on the returns to education in China.

In the first chapter, I investigate the relationship between farmers' individual risk preferences and their decisions regarding Bt cotton adoption. In the analysis, I expand the measurement of risk preferences beyond expected utility theory to incorporate prospect theory parameters such as loss aversion and nonlinear probability weighting. Using the duration model, I find that farmers who are more risk averse are less likely to adopt the new technology. The more loss averse farmers are also less likely to adopt Bt cotton. However, farmers who overweight small probabilities adopt Bt cotton earlier.

The second chapter continues and expands upon the first. I examine whether individuals' risk preferences are correlated with their pesticide use after the adoption of pest-resistant Bt cotton, a crop that ostensibly reduces the need for pesticide. I find that farmers who are more risk averse use more pesticide even after adopting the Bt cotton. Surprisingly, farmers who are more loss averse use less pesticide. Although I show in the first chapter that education cannot predict the timing of adoption decisions, I find here that for each additional year of education a farmer obtains, he uses 2.8 percent less pesticide. In addition, attending a Bt Cotton training session dramatically reduces the amount of pesticides used, but over time this effect wanes.

In the final chapter, I provide a meta-analysis of existing empirical literature estimating the returns to education in China. I find that these estimates are quite sensitive to the model specification employed. Specifically, econometric specifications account for approximately fifty percent of the variation in estimates. The findings also suggest that returns to education were extremely low prior to market reform in 1978, but the rate of returns to schooling increases at about 0.3 percent per year. This increasing trend remains strong and it suggests that the reforms in the Chinese labor market have been successful in rewarding human capital accumulation as the country liberalizes from a planned economy.