Inventory Credit as a Commitment Device to Save Grain Until the Hunger Season

Abstract

In January 2013, we collected data from 653 farmers in Burkina Faso, who were asked hypothetical questions about risk aversion and time discounting. Ten months later, these farmers were offered the opportunity to participate in an inventory credit system, also called warrantage, in which they receive a loan in exchange for storing a portion of their harvest as a physical guarantee in one of the newly-built warehouses of the program. We found that farmers who exhibit stronger hyperbolic preferences are significantly more likely to participate in the warrantage system than other, otherwise similar, farmers. We interpret this result as evidence that farmers use warrantage as a means to commit to saving a portion of their crop until the lean season, which may improve their capacity to ensure the food security of their household.

Price risk and small farmer maize storage in Sub‐Saharan Africa: New insights into a long‐standing puzzle

“…Explanations for farmers' failing to exploit apparent intertemporal arbitrage opportunities have centered on liquidity constraints and transaction costs (Aggarwal et al, 2018; Burke et al, 2019; Stephens & Barrett, 2011) —selling later is only viable if you can access credit or alternative sources of funds to meet consumption needs and pay debts at harvest. Other factors that likely contribute include consumption price hedging (Park, 2006; Saha, 1994), inadequate storage technologies (Channa et al, 2019; Walker et al, 2018), problems of post‐harvest pest damage in storage (Kadjo et al, 2016), preferences to consume one's own maize rather than maize in the market (Hoffmann & Gatobu, 2014), and time‐inconsistent preferences (Le Cotty et al, 2019).…”

A black dog enters the home: hunger and malnutrition in Malawi

“…Food shortages and hunger have also been exacerbated by climate change, which has impacted seasonal food deficits. The concept of a ‘hunger season’ (Cotty, Soubeyran, and Subervie 2019, 1115), when families are between harvests and food stores have run low, is not unique to Malawi. Participants’ common use of this expression indicates it is a regular occurrence.…”

Present-Biased Preferences and Credit Card Borrowing

“…Credit access and credit limits play an interesting role in the discussion of present bias and borrowing. 18 Not only may individuals choose their credit limits and number of credit cards, but firms may grant high or low credit limits, or deny credit entirely. Column 5 controls for the results of these interactions by adding, as explanatory variables, whether or not individuals have a credit card and their remaining available credit limit across all accounts (in natural logarithm).…”

“…The follow-up analysis in column 4 excludes this outlier. 18 Borrowers aware of their present bias may want to restrict their borrowing opportunities, and may choose a lower credit limit or not to have a credit card at all. For a discussion of "sophisticated" borrowing, see Heidhues and Koszegi (2008).…”