Productivity Shocks and Repayment Behavior in Rural Credit Markets: A Framed Field Experiment

47 Pages Posted: 28 Aug 2018

See all articles by Guigonan Serge Adjognon

Guigonan Serge Adjognon

World Bank

Lenis Saweda Liverpool-Tasie

Applied Fiscal Research Centre (AFReC) (Pty) Ltd.

Robert Shupp

Michigan State University - Department of Agricultural, Food and Resource Economics

Date Written: July 12, 2018

Abstract

Improving rural credit markets requires a good understanding of the root causes of market failures and taking necessary steps to address them. This paper investigates the role of productivity shocks in borrowers' repayment choices. Using a framed field experiment that simulated a repeated interaction in an input credit market, the analysis finds strong evidence that negative productivity shocks lead to higher default, even when they do not induce negative returns. This relationship is robust to the presence of an information exchange system enforcing dynamic incentives. The findings suggest that recurrent agricultural production shocks resulting from the negative effects of climate change could exacerbate failures in rural credit markets, undermining hard-won progress toward rural financial inclusion.

Keywords: Agricultural Economics, Climate Change and Environment, Climate Change and Health, Science of Climate Change, Macroeconomic Management, Governance Diagnostic Capacity Building, Economic Forecasting, Food Security, Inequality

Suggested Citation

Adjognon, Guigonan Serge and Liverpool-Tasie, Lenis Saweda and Shupp, Robert, Productivity Shocks and Repayment Behavior in Rural Credit Markets: A Framed Field Experiment (July 12, 2018). World Bank Policy Research Working Paper No. 8528, Available at SSRN: https://ssrn.com/abstract=3238371

Guigonan Serge Adjognon (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Lenis Saweda Liverpool-Tasie

Applied Fiscal Research Centre (AFReC) (Pty) Ltd.

7708 Rondebosch
South Africa

Robert Shupp

Michigan State University - Department of Agricultural, Food and Resource Economics ( email )

Agricultural Hall
East Lansing, MI 48824
United States
765-285-3724 (Phone)
765-285-8024 (Fax)

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