IDEAS home Printed from https://ideas.repec.org/a/ags/ifaamr/269550.html
   My bibliography  Save this article

Allocating production risks through credit cum insurance contracts: the design and implementation of a fund for small cotton growers to access market finance

Author

Listed:
  • Alem, Mauro
  • Jorge Elias, Julio

Abstract

Collateral requirements that lenders place on small cotton producers can lead to risk rationing and to farmers’ dependence on downstream parties. This paper presents a cotton fund that consists of a set of contracts – credit, insurance, warrant and forward – that enables producers to tackle specific agricultural risks and gain access to market finance. These financial contracts proved to be successful at guaranteeing the fund as issuer of state-contingent debt securities in the capital markets. The fund, as an intermediary, lent to cooperatives to help finance small cotton producers in northern Argentina. The paper explains the experimental design of this innovative fund and presents a potential alternative to government intervention by moving away from ex post subsidies for small producers and, instead, facilitating ex ante private credit. The paper contributes to the literature on rural financial intermediation by designing a new mechanism to raise funds coming from relatively uninformed investors and creating collateral substitutes through delegated monitoring to overcome asymmetric information and limited commitment.

Suggested Citation

  • Alem, Mauro & Jorge Elias, Julio, 2018. "Allocating production risks through credit cum insurance contracts: the design and implementation of a fund for small cotton growers to access market finance," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 21(2), March.
    • Handle: RePEc:ags:ifaamr:269550
    DOI: 10.22004/ag.econ.269550
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/269550/files/ifamr2017.0116.pdf
    Download Restriction: no
    File URL: https://ageconsearch.umn.edu/record/269550/files/ifamr2017.0116.pdf?subformat=pdfa
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.269550?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Coulter, J. & Onumah, G., 2002. "The role of warehouse receipt systems in enhanced commodity marketing and rural livelihoods in Africa," Food Policy, Elsevier, vol. 27(4), pages 319-337, August.
    2. Mike Burkart & Tore Ellingsen, 2004. "In-Kind Finance: A Theory of Trade Credit," American Economic Review, American Economic Association, vol. 94(3), pages 569-590, June.
    3. Catherine Guirkinger & Stephen R. Boucher, 2008. "Credit constraints and productivity in Peruvian agriculture," Agricultural Economics, International Association of Agricultural Economists, vol. 39(3), pages 295-308, November.
    4. Duflo, Esther, 2017. "The Economist as Plumber," CEPR Discussion Papers 11881, C.E.P.R. Discussion Papers.
    5. Robert M. Townsend, 2003. "Microcredit And Mechanism Design," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 468-477, 04/05.
    6. Christopher Phelan, 1994. "Incentives and Aggregate Shocks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 681-700.
    7. Aleem, Irfan, 1990. "Imperfect Information, Screening, and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan," The World Bank Economic Review, World Bank, vol. 4(3), pages 329-349, September.
    8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    9. Esther Duflo, 2017. "Richard T. Ely Lecture: The Economist as Plumber," American Economic Review, American Economic Association, vol. 107(5), pages 1-26, May.
    10. Conning, Jonathan & Udry, Christopher, 2007. "Rural Financial Markets in Developing Countries," Handbook of Agricultural Economics, in: Robert Evenson & Prabhu Pingali (ed.), Handbook of Agricultural Economics, edition 1, volume 3, chapter 56, pages 2857-2908, Elsevier.
    11. Edward Simpson Prescott, 2003. "Communication in Private-Information Models: Theory and Computation," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 28(2), pages 105-130, December.
    12. Jean Tirole, 2006. "The Theory of Corporate Finance," Post-Print hal-00173191, HAL.
    13. Esther Duflo, 2017. "The Economist as Plumber," NBER Working Papers 23213, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Julio Elías & Gustavo Ferro & Álvaro García, 2019. "A Quest for Quality: Creativity and Innovation in the Wine Industry of Argentina," Asociación Argentina de Economía Política: Working Papers 4135, Asociación Argentina de Economía Política.
    2. Hu, Lifang & Lopez, Rigoberto A. & Zeng, Yinchu, 2020. "Determinants of credit constraints for agricultural wholesalers in China," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 23(4), June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ta Nhat Linh & Hoang Thanh Long & Le Van Chi & Le Thanh Tam & Philippe Lebailly, 2019. "Access to Rural Credit Markets in Developing Countries, the Case of Vietnam: A Literature Review," Sustainability, MDPI, vol. 11(5), pages 1-18, March.
    2. Falavigna, Greta & Ippoliti, Roberto, 2023. "SMEs’ behavior under financial constraints: An empirical investigation on the legal environment and the substitution effect with tax arrears," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    3. Unal Seven & Semih Tumen, 2020. "Agricultural Credits And Agricultural Productivity: Cross-Country Evidence," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(supp01), pages 161-183, December.
    4. Dina Pomeranz & José Vila-Belda, 2019. "Taking State-Capacity Research to the Field: Insights from Collaborations with Tax Authorities," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 755-781, August.
    5. Nakano, Yuko & Magezi, Eustadius F., 2020. "The impact of microcredit on agricultural technology adoption and productivity: Evidence from randomized control trial in Tanzania," World Development, Elsevier, vol. 133(C).
    6. Krause, Philipp & Hernández Licona, Gonzalo, 2020. "From experimental findings to evidence-based policy," World Development, Elsevier, vol. 127(C).
    7. Smets, Frank & Collard, Fabrice & Boissay, Frédéric, 2013. "Booms and systemic banking crises," Working Paper Series 1514, European Central Bank.
    8. John Gibson, 2021. "The micro‐geography of academic research: How distinctive is economics?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(4), pages 467-484, September.
    9. Ingrid Harvold Kvangraven & Surbhi Kesar, 2021. "Standing in the Way of Rigor? Economics’ Meeting with the Decolonizing Agenda," Working Papers 2110, New School for Social Research, Department of Economics.
    10. Alice Nicole Sindzingre, 2021. "Truth vs justification: contrasting heterodox and mainstream thinking on development via the example of austerity in Africa," CEPN Working Papers hal-03139457, HAL.
    11. B. James Deaton, 2019. "Agricultural economics: Key commitments and institutional alertness," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 67(1), pages 5-14, March.
    12. Madajewicz, Malgosia, 2011. "Joint liability versus individual liability in credit contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 77(2), pages 107-123, February.
    13. Rehse, Dominik & Tremöhlen, Felix, 2020. "Fostering participation in digital public health interventions: The case of digital contact tracing," ZEW Discussion Papers 20-076, ZEW - Leibniz Centre for European Economic Research.
    14. Wei Yang Tham & Joseph Staudt & Elisabeth Ruth Perlman & Stephanie D. Cheng, 2024. "Scientific Talent Leaks Out of Funding Gaps," Working Papers 24-08, Center for Economic Studies, U.S. Census Bureau.
    15. Peter Boettke & John Kroencke, 2020. "The real purpose of the program: a case study in James M. Buchanan’s efforts at academic entrepreneurship to “save the books” in economics," Public Choice, Springer, vol. 183(3), pages 227-245, June.
    16. Button, Kenneth & Frye, Hailey & Reaves, David, 2020. "Economic regulation and E-scooter networks in the USA," Research in Transportation Economics, Elsevier, vol. 84(C).
    17. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
    18. Karthik Muralidharan & Paul Niehaus & Sandip Sukhtankar & Jeffrey Weaver, 2021. "Improving Last-Mile Service Delivery Using Phone-Based Monitoring," American Economic Journal: Applied Economics, American Economic Association, vol. 13(2), pages 52-82, April.
    19. Kuschnig, Nikolas & Vashold, Lukas, 2023. "The economic impacts of malaria: past, present, and future," Department of Economics Working Paper Series 338, WU Vienna University of Economics and Business.
    20. Schlaudt, Oliver, 2020. "Ein Neoliberalismus mit menschlichem Antlitz - Jean-Michel Servets Kritik der Verhaltensökonomie," Zeitschrift für Wirtschafts- und Unternehmensethik - Journal for Business, Economics & Ethics, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 21(2), pages 210-217.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:ifaamr:269550. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/ifamaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.