Abstract
This article addresses the question of whether subsidizing an entirely new agricultural technology for smallholder farmers can aid its adoption early in the diffusion process. Based on a theoretical framework for technology adoption under subjective uncertainty, we implemented a randomized field experiment among 1,200 smallholders in Uganda to estimate the extent to which subsidizing an improved grain storage bag crowds-out or crowds-in commercial buying of the technology. The empirical results show that on average, subsidized households are more likely to buy an additional bag at commercial prices relative to the households with no subsidy who are equally aware of the technology. This suggests that under certain circumstances, such as when there is uncertainty about the effectiveness of a new agricultural technology, and the private sector market for the technology is weak or nascent, a one-time use of subsidy to build awareness and reduce risk can help generate demand for the new technology and thus crowd-in commercial demand for it. In this context, a subsidy can allow farmers to experiment with the technology and learn from the experience before investing in it. JEL codes: C23, C93, O33, Q12, Q18.