A Financial Contracting Approach to the Role of Supermarkets in Farmers' Credit Access
Traditional moneylenders monitor farmers to ensure that their investment is not diverted. Modern farming contracts offered by supermarkets in developing countries often entail a loan component, and monitoring arises as well. However, unlike moneylenders, supermarkets do care about the attributes of the product. Whether such attributes are obtained is influenced largely by the advice and the extension services received by farmers. We build a financial contracting model where we show that supermarkets optimally undertake both the monitoring and the advisory missions. This contract is shown to potentially enhance credit access for small farmers but sometimes also involves excessive monitoring. Copyright 2010, Oxford University Press.
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Volume (Year): 92 (2010)
Issue (Month): 4 ()
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