Explaining tractorization in Nepal: An alternative to the ‘consequences approach’

The debate on whether or not agricultural mechanization should be subsidized in developing countries usually focuses on the employment and yield effects of mechanization. This paper takes the alternative tack that designing mechanization policy requires understanding the determinants of the mechanization choice. A model of investment and factor use is developed and applied to the land preparation decision of 99 farmers in the Terai region of Nepal. Farmers' ownership and use of tractors are accurately predicted by the hypothesis that farmers maximize expected accounting profits. Since farmers are privately efficient, tractor subsidies, which increase the wedge between the private and social shadow prices of mechanical power, will decrease economic effiency.