Working Paper: CEPR ID: DP7402
Authors: Esther Duflo; Michael Kremer; Jonathan Robinson
Abstract: While many developing-country policymakers see heavy fertilizer subsidies as critical to raising agricultural productivity, most economists see them as distortionary, regressive, environmentally unsound, and argue that they result in politicized, inefficient distribution of fertilizer supply. 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. Even when relatively patient, 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. Later discounts have a smaller impact, and when given a choice of price schedules, many farmers choose schedules that induce advance purchase. Calibration suggests such small, time-limited discounts yield higher welfare than either laissez faire or heavy subsidies by helping present-biased farmers commit to fertilizer use without inducing those with standard preferences to substantially overuse fertilizer.
Keywords: Hyperbolic discounting; Technology adoption
JEL Codes: D03; O12; O38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| intervention (D74) | fertilizer usage without intervention (Q16) |
| small time-limited discounts (D15) | higher welfare outcomes (I31) |
| small time-limited discounts (D15) | increased fertilizer use (Q16) |
| previous fertilizer use (Q15) | increased fertilizer use (Q16) |
| demographic factors (J11) | increased fertilizer use (Q16) |