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

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  • Allen Blackman

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, Oxford University Press.

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Bibliographic Info

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

Volume (Year): 83 (2001)
Issue (Month): 4 ()
Pages: 1024-1035

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Handle: RePEc:oup:ajagec:v:83:y:2001:i:4:p:1024-1035

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  1. Feder, Gershon & Just, Richard E & Zilberman, David, 1985. "Adoption of Agricultural Innovations in Developing Countries: A Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 255-98, January.
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  16. Siamwalla, Ammar, et al, 1990. "The Thai Rural Credit System: Public Subsidies, Private Information, and Segmented Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 271-95, September.
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Cited by:
  1. Casillas, Gabriel & Mitchell, Paul D., 2003. "Rural Credit Rationing And National Development Banks In Developing Countries," 2003 Annual meeting, July 27-30, Montreal, Canada 22199, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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