Chapter 16 Credit markets and interlinked transactions

Bell, Clive

doi:10.1016/s1573-4471(88)01019-8

Cited by 80 publications

(65 citation statements)

References 29 publications

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“…The main responsibility for the company under the contract is to purchase the farmer's 18 Interlinkages, where a single contract or transaction between agents spans different markets, are an important feature of many agricultural markets in developing countries (Bardhan 1980;Bell 1988;IFAD 2003) 19 Inflation in Kenya was around 6% per annum during the study, so the real interest rate on input loans from the company was 7% per annum.…”

Section: A Contract Farmingmentioning

confidence: 99%

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Time vs. State in Insurance: Experimental Evidence from Contract Farming in Kenya

Casaburi

Willis

2016

SSRN Journal

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The gains from insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid upfront, standard insurance products also transfer income across time. We show that this intertemporal transfer can help explain low insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop insurance product which removes it. The product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the insurance and deducts the premium from farmer revenues at harvest time. The take-up rate is 72%, compared to 5% for the standard upfront contract, and take-up is highest among poorer farmers. Additional experiments and outcomes indicate that liquidity constraints, present bias, and counterparty risk are all important constraints on the demand for standard insurance. Finally, evidence from a natural experiment in the United States, exploiting a change in the timing of the premium payment for Federal Crop Insurance, shows that the transfer across time also affects insurance adoption in developed countries. AcknowledgementsWe wish to thank

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Section: A Contract Farmingmentioning

confidence: 99%

“…14 See Bardhan (1980), Bardhan (1989), andBell (1988) for summaries of this literature. 15 In particular, Casaburi and Macchiavello (2016) discuss how reputation allows large firms to credibly provide interlinked services to their suppliers.…”

Section: Introductionmentioning

confidence: 99%

Time vs. State in Insurance: Experimental Evidence from Contract Farming in Kenya

Casaburi

Willis

2016

SSRN Journal

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“…These high risks are not easily insured via formal market mechanisms. Credit and insurance markets are typically absent or incomplete for good theoretical reasons or linked to bad policy (for surveys, see Bell 1988or Besley 1994. Consumption loans are rare.…”

Section: Risk Household Responses and Consequencesmentioning

confidence: 99%

Income Risk, Coping Strategies, and Safety Nets

Dercon

2002

The World Bank Research Observer

787

545

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High income risk is part of life in developing countries. Climatic risks, economic fluctuations, but also a large number of individual-specific shocks make these households vulnerable to serious hardship. For example, details are given on the various shocks and events causing serious hardship to rural households in Ethiopia in the last twenty years. Not surprisingly for Ethiopia, climatic events are the most common cause of shocks, but many households suffer from other common or idiosyncratic shocks related to economic policy, labour or livestock.Rural and urban households in developing countries face substantial risk. Households in risky environments have developed sophisticated (ex ante) risk-management and (ex post) risk-coping strategies, including self-insurance via savings and informal insurance mechanisms while formal credit and insurance markets appear to contribute only little to reducing income risk and its consequences. Despite these strategies, vulnerability to poverty linked to risk remains high. In this paper, I focus on the opportunities available to households to use risk-management and risk-coping strategies, and on the constraints on their effectiveness, by reviewing some of the recent literature on savings as insurance, income diversification and smoothing, and informal risk-sharing arrangements. Risk and lumpiness limit the opportunities to use assets as insurance. Entry constraints limit the usefulness of income diversification. Informal risk-sharing only provides limited protection, especially for some of the poor and their sustainability during periods of change is in doubt. Public safety nets are likely to be beneficial, but their impact is at times limited while they may have negative externalities on households not covered by the safety net. The paper also discusses the implications for policy as well as the information requirements to increase our understanding of vulnerability and implement better vulnerability reducing policies.

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“…They are largely ineffective against shocks that are highly correlated over space, such as droughts (Cashdan (1985); Platteau (1991); Binswanger and Rosenzweig (1986);Fafchamps (1992Fafchamps ( , 1994; Udry (1994)). Consumption credit too is geographically and socially concentrated and provides little or no protection against aggregate shocks (see Bell (1988), Besley (1993) and Alderman and Paxson (1993) for reviews of the large literature on rural credit). To capture these features in a stylized fashion, we assume that _ ______________ 3 See, however, Carter (1994).…”

Section: A Model Of Livestock As Buffer Stockmentioning

confidence: 99%

Drought and Saving in West Africa: Are Livestock a Buffer Stock?

Fafchamps

Udry²,

Czukas

1998

SSRN Journal

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Households in the west African semi-arid tropics, as in much of the developing world, face substantial risk --an inevitable consequence of engaging in rainfed agriculture in a drought-prone environment. It has long been hypothesized that these households keep livestock as a buffer stock to insulate their consumption from fluctuations in income. This paper has the simple goal of testing that hypothesis. Our results indicate that livestock transactions play less of a consumption smoothing role than is often assumed. Livestock sales compensate for at most thirty percent, and probably closer to twenty percent of income shortfalls due to village-level shocks alone. We discuss possible explanations for these results and suggest directions for future work.

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Chapter 16 Credit markets and interlinked transactions

Cited by 80 publications

References 29 publications

Time vs. State in Insurance: Experimental Evidence from Contract Farming in Kenya

Time vs. State in Insurance: Experimental Evidence from Contract Farming in Kenya

Income Risk, Coping Strategies, and Safety Nets

Drought and Saving in West Africa: Are Livestock a Buffer Stock?

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