Working Paper: NBER ID: w15131
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: Fertilizer; Behavioral Economics; Agriculture; Subsidies; Kenya
JEL Codes: D03; O12; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| small time-limited discounts (D15) | higher welfare (I31) |
| heavy subsidies (H23) | overuse by time-consistent farmers (Q15) |
| stochastically present-biased farmers (D15) | systematic underestimation of future impatience (D15) |
| 71% of farmers are stochastically present-biased (D91) | fertilizer investment behavior (G31) |
| free delivery immediately after harvest (L87) | increase in fertilizer use (Q16) |
| timing of discounts (L42) | increase in fertilizer use (Q16) |