"Agricultural Decisions after Relaxing Credit and Risk Constraints," with Dean Karlan, Yale University, Friday, April 5, 3:40 PM-5 PM, 368A Heady Hall.

Dean Karlan is a Professor of Economics at Yale University. Karlan is President of Innovations for Poverty Action, a non-profit organization that creates and evaluates solutions to social and development problems, and works to scale-up successful ideas through implementation and dissemination to policymakers, practitioners, investors and donors. Karlan is on the Board of Directors of the M.I.T. Jameel Poverty Action Lab. As a social entrepreneur, He is Founder and President of stickK.com, a website that uses lessons from behavioral economics to help people reach personal goals, such as weight loss and smoking cessation, through commitment contracts. In 2011, Karlan co-authored More Than Good Intentions: How a New Economics is Helping to Solve Global Poverty. Karlan received a Presidential Early Career Award for Scientists and Engineers, and was named an Alfred P. Sloan Fellow. His research focuses on microeconomic issues of financial decision-making, specifically employing experimental methodologies to examine what works, what does not, and why in interventions in microfinance, health, behavioral economics and charitable giving. In microfinance, he has studied credit impact, interest rate policy, savings product design, credit scoring policies, entrepreneurship training, and group versus individual liability. Karlan received a Ph.D. in Economics from M.I.T., an M.B.A. and an M.P.P. from the University of Chicago, and a B.A. in International Affairs from the University of Virginia. He can be followed on twitter @deankarlan, and blogs regularly on Freakonomics.

Abstract: The investment decisions of small-scale farmers in developing countries are conditioned by their financial environment. Binding credit market constraints and incomplete insurance can reduce investment in activities with high expected profits. We conducted several experiments in northern Ghana in which farmers were randomly assigned to receive cash grants, grants of or opportunities to purchase rainfall index insurance, or a combination of the two. Demand for index insurance is strong, and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture. The salient constraint to farmer investment is uninsured risk: when provided with insurance against the primary catastrophic risk they face, farmers are able to find resources to increase expenditure on their farms. Demand for insurance in subsequent years is strongly increasing in a farmer's own receipt of insurance payouts, and with the receipt of payouts by others in the farmer's social network. Both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance, and with imperfect trust that promised payouts will be delivered.