Abstract:
The worlds 500 million smallholder farms are essential to the global economy, but face a fundamental challenge: farmers must commit to investment decisions before the weather -- a key input to production -- is realized. Farmers must therefore rely on their beliefs about inherently uncertain weather. In theory, a forecast that could align beliefs with actual realizations would enable farmers to improve their investments across multiple margins, but in practice, forecasts’ effectiveness remains unknown. We use an RCT to document four new facts about farmer beliefs and forecasts. First, beliefs drive farmer behavior in the status quo. Second, farmers update their beliefs when given a high-quality, long-range forecast. Third, this forecast allows farmers to broadly re-optimize their investments, making adjustments both on and off the farm, which improves overall welfare. Fourth, farmer beliefs also impact their responses to a canonical agricultural policy instrument -- insurance -- underscoring the importance of aligning beliefs with realizations.
About the presenter:
Erin Kelley is an Assistant Professor at the Harris School of Public Policy at the University of Chicago, and a consultant with DEC at the World Bank. Her research focuses on identifying strategies to increase individual and household productivity, as an essential pathway to improving income and overall well-being. She studies this across three key domains: agriculture, where most households in low-income countries earn their livelihoods; industry, as a driver of economic transformation; and humanitarian settings, where productivity gains can support vulnerable populations. Gregory Lane is an Assistant Professor at the Harris School of Public Policy at the University of Chicago. His current research focuses on innovations in finance and technology, climate adaptation, and labor markets in developing countries. His ongoing work includes projects in Bangladesh, Uganda, and India.