People in rural areas of developing countries are often trapped in poverty. They face a number of challenges to escape this trap, including exposure to unpredictable weather patterns, the absence of institutional insurance and credit facilities, health shocks, and many more. We propose to address several of these constraints in a large-scale research project collecting panel data over the course of at least 6 years. The project aims at providing an integrated view on development that addresses some of the major issues through three major steps:
1) We propose to conduct two large-scale randomized controlled trials (RCTs) with the aim of evaluating some interventions aimed at removing health and investment barriers, while at the same time reducing emissions of greenhouse gases. The first consists of the substitution of highly polluting indoor woodstoves with clean biogas stoves. This has the potential to reduce respiratory problems arising from indoor air pollution. It also saves about 3.3t of CO2 emissions per family per year. The second RCT concerns the effectiveness of low carbon farming techniques. Such techniques substitute organic fertilizers for chemical ones, manage water on the farm, and give farmers more control over their inputs. This lowers the investment barriers in farming, since costly chemical fertilizer may be too expensive for cash-stripped farmers. It also reduces emissions of greenhouse gases from agriculture.
2) Investment decisions by farming households are generally thought to be determined by both preferences and beliefs. For instance, farmers who expect low rainfall for the coming season may be unwilling to invest into fertilizer, or may switch from rain-sensitive cash crops to safer subsistence crops. Even if beliefs are correct on average, farmers may still be reluctant to invest large amounts into fertilizer because they are risk averse, fearing the loss of the investment in case of low rainfall. Or they may be reluctant to invest scarce resources now to reap the fruits of their investment several months later if they discount the future at high rates. The role played by both beliefs and preferences in these types of decisions is not well understood. By systematically measuring preferences and their determinants—-as well as beliefs and their correspondence to objective rainfall data—-we hope to help making policies aimed at helping farmers more effective.
3) One of the reasons why farmers may be very risk averse or myopic in their farming decisions is that generally no institutional mechanisms exist to deal with shortfalls in income. That is, farmers can neither insure the risks they face, nor do they have access to credit that could help them smooth shocks after they occur. We thus propose to conduct RCTs offering farmers crop insurance and credit lines. While there is little evidence on credit, index-based insurance has often suffered from low take-up rates where available. In this respect, the measurements from step 2 above will be crucial in determining the causes of failure to take up insurance, and to improve communication strategies.