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Credit Constraints and Capital Allocation in Agriculture: Theory and Evidence from Uganda

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  • Burchardi, Konrad
  • Lerva, Benedetta
  • de Quidt, Jonathan
  • Tripodi, Stefano

Abstract

Fertilizer adoption is persistently low among Sub-Saharan African farmers. Numerous governments have responded by introducing substantial price subsidies, but solving an allocation problem by introducing price distortions has unclear welfare implications. This paper presents results from a theory-guided experiment on fertilizer adoption among Ugandan farmers, finding that there exists a group of farmers with high returns to fertilizer, who would not adopt at the market price but can be induced to adopt with a 30% subsidy. Furthermore, consistent with adoption frictions due to liquidity constraints, the results indicate that a cash transfer is sufficient to eliminate the need for subsidies. These findings tie into broader ideas on second-best policymaking (Lipsey and Lancaster, 1956) and have important implications for fertilizer policy in Africa.

Suggested Citation

  • Burchardi, Konrad & Lerva, Benedetta & de Quidt, Jonathan & Tripodi, Stefano, 2026. "Credit Constraints and Capital Allocation in Agriculture: Theory and Evidence from Uganda," CEPR Discussion Papers 21023, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21023
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