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

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Listed author(s):
  • Blackman, Allen

    ()

    (Resources for the Future)

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. To fill this gap, 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.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-01-17.

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Date of creation: 01 Apr 2001
Handle: RePEc:rff:dpaper:dp-01-17
Contact details of provider: Web page: http://www.rff.org

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Keywords: : agriculture; asymmetric information; credit; developing country; technology adoption.;

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Find related papers by 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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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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