No Small Potatoes: Agricultural Risk and Investment under Uncertainty

Abstract

A primary reason for poor agricultural yields in low-income countries is that farmers underinvest in their crops. Farmers face numerous sources of agricultural risk, and minimize their exposure by reducing their use of inputs, which also lowers their average productivity. I conduct a randomized control trial in Bangladesh to determine whether an alert system that enables farmers to take precautionary measures against crop disease would reduce risk and improve investment in inputs. The intervention reduces losses and increases investment, but only among farmers who can verify that they are receiving accurate alerts. These results demonstrate that interventions which allow people to learn about their efficacy are the ones most likely to be effective.