Productivity, Credit, Risk, and the Demand for Weather Index Insurance in Smallholder Agriculture in Ethiopia

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The paper should address some problem in development economics in any low- or middleincome
country (or countries) you choose. It should accomplish 3 things:
a) Describe the problem and relate it to current work in the field
b) Use data to investigate the problem investigating trends or comparisons across groups
c) Make policy conclusions
2) Organization is essential. Make an outline before you start writing the paper. Five pages is
not much, so make sure you are concise. The outline could look something like this:
a) An introductory paragraph (or page) that identifies the key issues and your thesis and
refers to some relevant literature.
b) An ordered list of sections that lay the basis for your argument about the topic you have
chosen. Turn each section into 2-3 paragraphs.
c) A conclusion (one page) that reinforces your argument and provides policy guidance for a government or NGO interested in acting on your findings.
3) Substantiate each argument in section (b) above with data, what other authors have written,
and well-reasoned prose. Try to avoid being passive, descriptive, and simply summarizing
what others have said. Logically present your thinking to support your position.
4) Requirements:
a) Reference at least two academic sources (books, book chapters or journal articles), and at
least 4 sources total (the other 2 can be newspaper or magazine articles, web pages, etc).
b) You must include at least 1 table and 1 figure that YOU make using data you found
online or in an academic or research reference. You will submit the raw data (in Excel or
other spreadsheet form) along with your paper.
c) Do not write less than five, or more than six, double spaced pages. Please use one
inch margins on all sides and 12 point font.
d) Bibliography and tables do not count as part of the 5 pages.
My topic:
http://cega.berkeley.edu/evidence/productivity-credit-risk-and-the-demand-for-
Financial Services
Econ 181
2 Kinds of Financial Services
• Credit and Banking:
– Savings
– Loans
• Insurance:
– Crops
– Machinery
– Health
Credit
• Many of the world’s poor lack access to credit
– Can affect producJvity in Ag.
• To purchase ferJlizer, returns > costs
– Can affect opJmal schooling for children
• Can’t borrow against their future earnings
• Mohammed Yunus – 1983
– Grameen Bank
– Began the “Micro-Credit” Movement
Take-up and Loan Size
Why No Available Credit?
• Well – there is some…
– Local moneylenders with high interest rates?
• Why no formal markets?
– “Asymmetrical InformaJon”
• Moral Hazard
• Adverse SelecJon
Moral Hazard
• asymmetrical informaJon allowing
opportunism under the form of hidden
ac)ons.
• Will people use the money as intended?
– How can you monitor them?
• Example: Suppose your rental car was 100%
insured….
Adverse SelecJon
• hidden informa)on about the characterisJcs
of a person or a product that gives room for
opportunisJc behavior
• Suppose there are two types of borrowers:
– Good and Bad
– Can’t tell the difference before
• How know who to lend to?
Group Lending
• Solves the Moral Hazard and Adverse
SelecJon problems:
– AS: Groups form among networks of people that
select into the “good” type – low prob of MH
– MH: Co-responsibility means pressure to
complete projects and pay back loans
Insurance
• Insuring Crop ProducJon v. Index Insurance
• Adverse selecJon in decision to purchase
• Moral hazard in producJon effort
• Actuarially fair insurance price: r = p
Insurance Problem in Book

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