What is it about?
In this study, we find the pricing of agricultural loans is significantly more important for production efficiency in Agriculture in relation to loan amounts. In the presence of information on loan pricing, we find loan amounts do not have any significant impact on farmers' efficiency. This is not to say we find capital is not important. Rather, we find capital amounts matter for efficiency only in so far as they fall short of the optimal amounts farmers need for productivity spending.
Why is it important?
Agricultural programs at times focus on providing farmers with capital grants (within this context, capital grants are not the same as farmer subsidies) as opposed to agricultural loans. Our empirical results indicate, consistent with findings in some other studies, that capital grants are ineffective for generating productivity gains in agriculture. This is the case because in the absence of a minimum target return implied by loan interest rates, farmers that receive capital grants do not have the same incentives as farmers that receive loans.
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This page is a summary of: The Effects of Relative or Absolute Risk Aversion on Production Efficiency in Agriculture: Evidence from the 'Bread Basket' of Nigeria, SSRN Electronic Journal, January 2014, Elsevier,
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