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Why Don't Lenders Finance High-Return Technological Change in Developing-Country Agriculture

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 Blackman, Allen

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Abstract

Most of the literature attributes credit constraints in small-farm developing-country agriculture to the variability of returns to investment in this sector. But the literature does not fully explain lenders' reluctance to finance investments in technologies that provide both higher average and less variable returns. This article develops an information-theoretic credit market model with endogenous technology choice. The model demonstrates that lenders may refuse to finance any investment in a riskless high-return technology--regardless of the interest rate they are offered--when they are imperfectly informed about loan applicants' time preferences and, therefore, about their propensities to default intentionally in order to finance current consumption. Copyright 2001 by American Agricultural Economics Association

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Article provided by American Agricultural Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 83 (2001)
Issue (Month): 4 (November)
Pages: 1024-35
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Handle: RePEc:bla:ajagec:v:83:y:2001:i:4:p:1024-35

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  2. Braverman, Avishay & Guasch, J. Luis, 1986. "Rural credit markets and institutions in developing countries: Lessons for policy analysis from practice and modern theory," World Development, Elsevier, vol. 14(10-11), pages 1253-1267. [Downloadable!] (restricted)
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  5. Zeller, Manfred & Schrieder, Gertrud & von Braun, Joachim & Heidhues, Franz, 1997. "Rural finance for food security for the poor," Food policy reviews 4, International Food Policy Research Institute (IFPRI).
  6. Aleem, Irfan, 1990. "Imperfect Information, Screening, and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 329-49, September.
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  8. Bell, Clive, 1990. "Interactions between Institutional and Informal Credit Agencies in Rural India," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 297-327, September.
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  12. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  13. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 351-66, September.
  14. Siamwalla, Ammar, et al, 1990. "The Thai Rural Credit System: Public Subsidies, Private Information, and Segmented Markets," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 271-95, September.
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