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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.

Suggested Citation

  • Allen Blackman, 2001. "Why don't Lenders Finance High-Return Technological Change in Developing-Country Agriculture?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 1024-1035.
  • Handle: RePEc:oup:ajagec:v:83:y:2001:i:4:p:1024-1035
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    File URL: http://hdl.handle.net/10.1111/0002-9092.00227
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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).

    More about this item

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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