Collateral‐free lending with risk‐contingent credit for agricultural development: indemnifying loans against pulse crop price risk in India

This article addresses the problem of collateral‐free lending in the context of agricultural development. We investigate a viable alternative to traditional credit products through the development of risk‐contingent credit for operating loans and farm mortgages and apply the concept to agricultural loans for pulse crops in India. Risk‐contingent credit mitigates business and financial risk by reducing debt obligations depending on the embedded commodity options whose payoffs are linked with commodity price fluctuations. We analyze daily commodity spot prices for pulse crops in India and show how risk‐contingent structured financial instruments can be priced in practice.     

Convergent validity in contingent valuation: an application to the willingness to pay for national climate change mitigation targets in Germany

This stated preferences survey determines the willingness to pay (WTP) for climate change mitigation policies using a representative sample of the German population. WTP is compared across three valuation question formats in a split sample design: the dichotomous choice (DC) referendum, the dissonance minimizing (DM) referendum and the two‐way payment ladder (TWPL). The influence of multinational cooperation on WTP is assessed by variation in the hypothetical scenarios. We demonstrate that the DM referendum and the TWPL, two question formats that induce similar response incentives, yield equal mean WTPs. Multinational cooperation did not change WTP in any of the question formats. Implications for current contingent valuation practice are discussed.     

Drought‐tolerant rice,weather index insurance,and comprehensive risk management for smallholders: evidence from a multi‐year field experiment in India

In rainfed production systems throughout India, agricultural activities are dependent upon the summer monsoon, and any aberration in monsoon rainfall patterns can have severe consequences for rice production. There is considerable policy interest in designing programs to lower small‐scale farmers’ exposure to these types of risk given the regularity with which adverse monsoon events occur. This paper introduces a field experiment conducted with two risk management options in the state of Odisha: a drought‐tolerant rice cultivar; and a weather index insurance product designed to complement the performance of the cultivar. Uptake rates for the cultivar itself and for the joint product are compared across two years alongside an analysis of factors that predict uptake. Results indicate high levels of demand for both the products, albeit with a significant degree of price sensitivity. But this sensitivity is agnostic to the nature of price reductions, suggesting that public investments that lower the costs of risk management may be sufficient to encourage broad uptake, without necessarily relying upon distortionary subsidies as is so often done. Sustained demand between years one and two is primarily explained where individuals were indemnified in year one and had a large number of peers also purchasing the product.