Lunch Seminar Economics (LSE) - 2021/2022
Interviene: Davide Pietrobon, Université de Genève
Title: Risk Sharing, Private Information, and the Use of Fertilizer
Authors: Davide Pietrobon
Abstract: Insuring people's consumption can push them to cut their effort when it is difficult to monitor how hard they work. This effort reduction can go hand in hand with a decrease in the use of effort-complementary inputs. I use this mechanism to explain how risk-sharing may withhold fertilizer use in rural India. I study a model of risk-sharing with hidden action frictions and use the latest ICRISAT panel to estimate it. Median fertilizer use is 3.6 times higher under no sharing than under full insurance. A subsidy that halves the purchase prices of fertilizer would almost double farmers' welfare in consumption-equivalent terms.