Mechanization and downside income risk: Evidence from three Terai districts in Nepal

Abstract Mechanization service markets allow smallholders to rent machinery, but their association with farm outcomes may vary by scale. Household data from three districts in Nepal's Terai are used to examine associations between mechanization, profitability, and downside income risk. Mechanization share is not significantly associated with net farm income per hectare among the smallest farms but is positively associated with profitability among intermediate‐scale farms. Higher mechanization share is also associated with a lower probability of negative net farm income. These results suggest that service‐based mechanization is associated with farm‐level economic outcomes across farm sizes, including exposure to downside risk.