Agricultural Decisions after Relaxing Credit and Risk Constraints

Dean Karlan, Robert Osei (), Isaac Osei-Akoto and Christopher Udry

The Quarterly Journal of Economics, 2014, vol. 129, issue 2, 597-652

Abstract: The investment decisions of small-scale farmers in developing countries are conditioned by their financial environment. Binding credit market constraints and incomplete insurance can limit investment in activities with high expected profits. We conducted several experiments in northern Ghana in which farmers were randomly assigned to receive cash grants, grants of or opportunities to purchase rainfall index insurance, or a combination of the two. Demand for index insurance is strong, and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture. The binding constraint to farmer investment is uninsured risk: when provided with insurance against the primary catastrophic risk they face, farmers are able to find resources to increase expenditure on their farms. Demand for insurance in subsequent years is strongly increasing with the farmer’s own receipt of insurance payouts, with the receipt of payouts by others in the farmer’s social network and with recent poor rain in the village. Both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance, imperfect trust that promised payouts will be delivered and overweighting recent events.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (501)

Downloads: (external link)
http://hdl.handle.net/10.1093/qje/qju002 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Agricultural Decisions after Relaxing Credit and Risk Constraints (2012)
Working Paper: Agricultural Decisions after Relaxing Credit and Risk Constraints (2012)
Working Paper: Agricultural Decisions after Relaxing Credit and Risk Constraints (2012)
Working Paper: Agricultural Decisions after Relaxing Credit and Risk Constraints (2012)
Working Paper: Agricultural Decisions after Relaxing Credit and Risk Constraints (2012)
Working Paper: Agricultural Decisions after Relaxing Credit and Risk Constraints (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:129:y:2014:i:2:p:597-652

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().