Returns to mechanization through rental equipment

This paper studies the role of the availability of formal rental equipment markets for agri- cultural productivity. Mechanization is one of the main inputs in modern agriculture, and the lack of it is arguably an important contributor to the low productivity observed in poor countries, and in particular, among smallholder farmers. We partner up with one of the largest equipment rental providers in India and study barriers to mechanization, and returns to it. Using administrative data from our implementation partner, we document usage pat- terns of equipment throughout the crop season as well as delays in service completion by plot size. We nd heterogeneity in patterns of usage across plot sizes. We combine these ndings with survey data on detailed farmer characteristics, including wealth and household characteristics, as well as on price and credit sensitivity to identify the population of farmers for which barriers to mechanization are more pervasive. We then build a structural model of equipment rental markets where richer farmers own and rent-out equipment, while poorer ones rent-in equipment or specialize in labor intensive farming activities. Informed by key predictions of the model we design a randomized control trial (RCT) to inform us on the magnitude of the costs associated to delays in service provision, as well as on the magnitude of barriers to adoption associated to (i) technical constraints (small lot sizes), (ii) farmer's nancial constraints and (iii) information frictions. These estimates are then feed into the structural model to assess the general equilibrium eect of barriers to mechanization on agricultural productivity.