Ruth Vargas Hill

Selling at the Farmgate or Traveling to Market

Using detailed survey data from Uganda, this article examines whether coffee producers sell to itinerant traders or directly to markets, where they can get a higher price but must incur a transport cost. We find that selling to the market is more likely when the quantity sold is large and the market is close by. Wealthy farmers are less likely to sell to the market, possibly because the shadow value of their time is higher. But if they have a large quantity of coffee for sale, they are more likely to sell it to the market. They are also more likely to travel to a distant market. These findings are consistent with their better ability to pay for public transportation. We find no evidence that the decision to sell at the farmgate is driven by a self-control motive.

Adoption of Weather-Index Insurance: Learning from Willingness to Pay Among a Panel of Households in Rural Ethiopia

In this paper we examine which farmers would be early entrants into weather indexinsurance markets in Ethiopia, were such markets to develop on a large scale. We do this by examining the determinants of willingness to pay for weather insurance among 1,400 Ethiopian households that have been tracked for 15 years as part of the Ethiopia Rural Household Survey. This provides both historical and current information with which to assess the determinants of demand. We find that educated, rich, and proactive individuals were more likely to purchase insurance. Risk aversion was associated with low insurance take-up, suggesting that models of technology adoption can inform the purchase and spread of weather index insurance. We also assess how willingness to pay varied as two key characteristics of the contract were varied and find that basis risk reduced demand for insurance, particularly when the price of the contract was high, and that provision of insurance through groups was preferred by women and individuals with lower levels of education.

Price Transmission and Trader Entry in Domestic Commodity Markets

Using detailed data from three simultaneous surveys of producers, traders, and exporters, this paper examines the transmission of international coffee prices through the domestic value chain in Uganda. We find that producer price fluctuations are inconsistent with constant transaction costs. We investigate three possible explanations for this finding: storage and contango, marketing costs that increase with price, and trader entry that raises search time. We test and reject the storage and marketing costs explanation, but we find some evidence of trader entry in response to a rise in export price. Our findings suggest that small itinerant traders enter in response to an export price increase, probably taking advantage of farmers’ ignorance of the rise in wholesale price.

Using Stated Preferences and Beliefs to Identify the Impact of Risk on Poor Households

Abstract Whilst the importance of uncertainty in shaping economic behaviour of poor households is widely acknowledged, empirically identifying the impact of risk is difficult. By using data on risk preferences and perceptions of risk collected through hypothetical questions in combination with more traditional measures of a households ability to deal with risk, this article identifies the impact of risk on production decisions. It shows both that data on stated preferences and beliefs can be usefully utilised to explain household behaviour, and that risk has a significant impact on the production decisions of poor households.Whilst the importance of uncertainty in shaping economic behaviour of poor households is widely acknowledged, empirically identifying the impact of risk is difficult. By using data on risk preferences and perceptions of risk collected through hypothetical questions in combination with more traditional measures of a households ability to deal with risk, this article identifies the impact of risk on production decisions. It shows both that data on stated preferences and beliefs can be usefully utilised to explain household behaviour, and that risk has a significant impact on the production decisions of poor households.

Breaking the Norm: An Empirical Investigation into the Unraveling of Good Behavior

We present results from an artefactual field experiment conducted in rural Peru that considers whether observing non-reciprocal behavior influences an individuals decision to reciprocate. Specifically, we consider the behavior of second movers in a trust game, assessing whether their decision to reciprocate is influenced by the observed reciprocity of others. In documenting the impact of an external shock to observed reciprocity, this paper shows that small increases in non-reciprocal behavior result in an unraveling of the norm of reciprocity. Survey data is used to explore mechanisms by which this occurred. Results are not consistent with learning effects, suggesting that preferences may be changed by observing others deviating from a norm of reciprocity. These results suggest that investing in encouraging trustworthy behavior can have large benefits in situations where individuals are observing each others behavior, such as may be the case in a new market institution.

Mainstreaming Gender Sensitivity in Cash Crop Market Supply Chains

This paper considers the impact of gender specific constraints on the production and marketing of cash crops. Cash crop production differs from general agricultural production in that it entails engaging in output markets to make sales. This in turn requires reliable access to these markets, and has implications on the necessary scale and quality of production. Assessing the nature of female involvement in cash crop production is important, not just because it differs from the production of other crops, but because cash crop production holds significant potential as a means by which rural households can improve their welfare. Through a combination of review and original data analysis, this paper stresses the point that women are equally productive as men and receive equal prices to men, when they farm with the same resources and sell their crops in the same way. However, our review and analysis shows that women rarely have similar access to assets and markets as men and this has a non-trivial impact on production and marketing of cash crops. These gender inequalities in resources result in different levels of participation, methods of production and modes of marketing cash crops, and bear consequences for womens potential outcome in the cultivation of these high value crops.

Demand for weather hedges in India: An empirical exploration of theoretical predictions

This paper analyzes the demand for rainfall-based weather hedges among farmers in rural India. We explore the predictions of a standard expected utility theory framework on the nature of demand for such products, in particular testing whether demand behaves as predicted with respect to price, the basis of the hedge, and risk aversion using data from a randomized control trial in which price and basis risk was varied for a series of hedging products offered to farmers. We find that demand behaves as predicted, with demand falling with price and basis risk, and appearing hump-shaped in risk aversion. Second, we analyze understanding of and demand for hedging products over time, examining the impact of increased investments in training on hedging products as well as evidence for learning by doing among farmers. We find evidence that suggests that learning by doing is more effective at increasing both understanding and demand.

Cost-benefit analysis of the african risk capacity facility:

The African Risk Capacity (ARC), has been proposed as a pan-Africa drought risk pool to insure against drought risk in Africa south of the Sahara. If fully operationalized, the ARC will mark a major change in how donors fund emergency support to countries in Africa during times of need. In this paper, we undertake a cost-benefit analysis of the ARC pool and discuss how lessons can inform the design of the ARC.

Borrowing from the Insurer: An Empirical Analysis of Demand and Impact of Insurance in China

We conduct a randomized controlled trial to examine the impacts of delayed premium payment on insurance uptake and the subsequent investment decisions among small-holder farmers in rural China. Our results show uptake among those with the delayed payment option is three times as high as among those without the option. Using the random variation in uptake thus induced, we find a positive impact of insurance adoption on household investment in production, especially higher-risk activities.Farmers in developing countries face relatively large income risk and have limited access to formal financial products that can help them manage their risk. We present results from a randomized controlled trial in rural China designed to understand whether a small change in the timing of a premium payment for a swine insurance contract helps to overcome an important barrier to insurance demand and, if so, whether the resulting increase in insurance would allow farmers to increase investment in activities that expose them to the risk being insured against. We find that insurance take-up is three times higher among those who were given the option to pay at the end of the insured period.

Demand for a Simple Weather Insurance Product in India: Theory and Evidence

This article analyzes the demand for a simple rainfall-based weather insurance product among farmers in rural India. We explore the predictions of a standard expected utility theory framework on the nature of demand in terms of price, the basis of the hedge, and risk aversion using data from a randomized control trial. We find that demand behaves as predicted: it falls with price and basis risk and is hump-shaped in risk aversion, with price sensitivity decreasing at higher levels of basis risk. We estimate a negative price elasticity of 0.58 and find that doubling the distance to a reference weather station decreases demand by 18%. These results indicate that improving pricing and quality of insurance products can directly increase demand. In addition, we examine the impact of insurance training relative to other mechanisms designed to increase understanding. The evidence suggests that increased incentives to learn or learning by using are more effective at increasing both understanding and demand. Finally, we contribute to the scarce evidence on the demand for insurance over time. In terms of our main interventions, we find that the effect of premium subsidies persists over time, while the impact of investments in new weather stations diminishes and the effect of increased training in the first season seems to disappear during the second season. Importantly, while having previously purchased insurance does not encourage future uptake, receiving a payout does. This could reflect issues of trust in the product or the insurance company, and constitutes an important topic for future research.