Efficient targeting of public programs is difficult when the cost or bene!t to potential recipients is private information. This study illustrates the potential of self-selection to improve allocational outcomes in the context of a program that subsidizes tree planting in Malawi. Landholders who received a tree planting contract as a result of bidding in an auction kept significantly more trees alive over a three year period than did landholders who received the contract through a lottery. The gains from targeting on private information through the auction represent a 30 percent cost savings per surviving tree for the implementing organization.
We conducted an experiment providing fertilizer grants to female rice farmers in Mali. We found that women who received fertilizer used both more fertilizer and more complementary inputs such as herbicides and hired labor. This shows that farmers respond to an increase in one input by re-optimizing other inputs. Second, while the increase in inputs led to a considerable increase in output, we found no evidence that profits increased. Our results suggest that fertilizer's impact on profits is small compared to other sources of variation. This may make it difficult for farmers to learn about the returns to fertilizer.
We model farmers as facing small fixed costs of purchasing fertilizer and assume some are stochastically present biased and not fully sophisticated about this bias. Such farmers may procrastinate, postponing fertilizer purchases until later periods, when they may be too impatient to purchase fertilizer. Consistent with the model, many farmers in Western Kenya fail to take advantage of apparently profitable fertilizer investments, but they do invest in response to small, time-limited discounts on the cost of acquiring fertilizer ( free delivery) just after harvest. Calibration suggests that this policy can yield higher welfare than either laissez-faire policies or heavy subsidies.
Enabling farmers to prepay for fertilizer when they had cash on hand was effective in promoting fertilizer adoption.
- Farmers had high demand for the ability to purchase fertilizer in advance. Among farmers who were offered advanced purchasing, 31 percent bought fertilizer in the first season of the program, and 39 percent bought it in the second season. The incentive offered to the farmers was small (free delivery), suggesting that farmers were attracted by the ability to commit to purchasing fertilizer in advance.
- Fertilizer adoption increased while advanced purchasing was offered, but once the program was removed, fertilizer usage went back to what it had been. Fertilizer adoption went up by 11-14 percentage points among farmers who were offered advanced purchasing. When the program ended, farmers in the treatment group reverted back to the same level of adoption as the comparison group.
- Prepayment had an impact on adoption comparable to a large subsidy during the growing season. Providing farmers with the option to purchase fertilizer in advance was as effective at increasing fertilizer adoption as a 50-percent discount, offered at the time when fertilizer needed to be applied.
Farmers face a particular set of risks that complicate the decision to borrow. We use a randomized experiment to investigate (1) the role of crop-price risk in reducing demand for credit among farmers and (2) how risk mitigation changes farmers’ investment decisions. In Ghana, we offer farmers loans with an indemnity component that forgives 50 percent of the loan if crop prices drop below a threshold price. A control group is offered a standard loan product at the same interest rate. Loan uptake is high among all farmers and the indemnity component has little impact on uptake or other outcomes of interest.
Following the 2011 elections, one of the most pressing challenges for the President, government ministries and international organizations is boosting youth incomes and employment, especially those of high-risk youth. What kinds of programs can boost employment and incomes and reduce the risk of social instability? This report details findings from an impact evaluation of a reintegration and agricultural livelihoods program for high-risk Liberian youth, and draws out lessons for employment policies in 2012 and beyond.
Does production risk suppress the demand for credit? We implemented a randomized field experiment to ask whether provision of insurance against a major source of production risk induces farmers to take out loans to adopt a new crop technology. The study sample was composed of roughly 800 maize and groundnut farmers in Malawi, where by far the dominant source of production risk is the level of rainfall. We randomly selected half of the farmers to be offered credit to purchase high-yielding hybrid maize and groundnut seeds for planting in the November 2006 crop season. The other half of farmers were offered a similar credit package, but were also required to purchase (at actuarially fair rates) a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall. Surprisingly, take up was lower by 13 percentage points among farmers offered insurance with the loan. Take-up was 33.0% for farmers who were offered the uninsured loan. There is suggestive evidence that reduced take-up of the insured loan was due to farmers already having some limited liability in case of default: insured loan take-up was positively correlated with farmer education, income, and wealth, which may proxy for the individual’s default costs. By contrast, take-up of the uninsured loan was uncorrelated with these farmer characteristics.
Many policymakers advocate heavy subsidies to boost fertilizer use and raise agricultural productivity. In contrast, most economists assume that farmers already take advantage of potential profit opportunities, and argue that heavy subsidies are distortionary, environmentally unsound, regressive, and lead to politicization and inefficiency in fertilizer supply. In earlier work, we show that fertilizer is profitable for farmers in Western Kenya. Yet, usage is low, pointing to possible inefficiencies. In this paper, we build a model with a small fixed cost of purchasing fertilizer in which some farmers are present-biased and partially naïve. Farmers therefore procrastinate, postponing purchasing fertilizer until proceeds from the harvest are spent. Consistent with the model, small time-limited reductions in the cost of purchasing fertilizer at the time of harvest induce substantial increases in fertilizer use, as much as considerably larger price cuts later in the season. Such small timelimited discounts could help present-biased farmers commit to fertilizer use without substantially distorting decisions of non-procrastinating farmers and incurring other costs of heavy subsidies.
This paper studies the productivity and distributional effects of large irrigation dams in India. Our instrumental variable estimates exploit the fact that river gradient affects a district’s suitability for dams. In districts located downstream from a dam, agricultural production increases, and vulnerability to rainfall shocks declines. In contrast, agricultural production shows an insignificant increase in the district where the dam is located but its volatility increases. Rural poverty declines in downstream districts but increases in the district where the dam is built, suggesting that neither markets nor state institutions have alleviated the adverse distributional impacts of dam construction.