Credit and Risk in Rural Developing Economies
Journal of Economic Dynamics & Control, 2006, 30, 4, 541-568
OSBORNE, Theresa, Credit and Risk in Rural Developing Economies, Journal of Economic Dynamics & Control, 2006, 30, 4, 541-568 - https://hdl.handle.net/1814/16584
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This paper examines the theory of credit as a means of raising the productivity and living standards of producer households who face significant uncertainty. A dynamic model with uncertainty is developed in which households choose how much to invest in a yield-enhancing technology, how much to consume, and how much to save. I find that while credit has important short and medium run benefits for productivity, consumption, and lifetime utility, these benefits are not sustained in the long run. Indeed, under reasonable parameter settings, mean consumption will fall. In contrast, the paper shows that risk mitigation has sustained benefits for productivity, lifetime utility, and equality. (c) 2005 Elsevier B.V. All rights reserved.
Cadmus permanent link: https://hdl.handle.net/1814/16584
Full-text via DOI: 10.1016/j.jedc.2005.01.002
Publisher: Elsevier Science Bv
Keyword(s): credit borrowing constraints agricultural development precautionary savings human capital investment
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