Category: Uncategorized

A new working paper (ungated copy here) by Mark Rosenzweig and Chris Udry:

We use newly-available Indian panel data to estimate how the returns to planting-stage investments vary by rainfall realizations. We show that the forecasts significantly affect farmer investment decisions and that these responses account for a substantial fraction of the inter-annual variability in planting-stage investments, that the skill of the forecasts varies across areas of India, and that farmers respond more strongly to the forecast where there is more forecast skill and not at all when there is no skill. We show, using an IV strategy in which the Indian government forecast of monsoon rainfall serves as the main instrument, that the return to agricultural investment depends substantially on the conditions under which it is estimated. Using the full rainfall distribution and our profit function estimates, we find that Indian farmers on average under-invest, by a factor of three, when we compare actual levels of investments to the optimal investment level that maximizes expected profits. Farmers who use skilled forecasts have increased average profit levels but also have more variable profits compared with farmers without access to forecasts. Even modest improvements in forecast skill would substantially increase average profits.

The intuition for some of the main results is as follows, from a (very) quick read of the paper: Risk-averse farmers will hedge against the considerable uncertainty surrounding rainfall by underinvesting, and thus underproducing.

In some cases, rainfall forecasts allow reducing some of that uncertainty, which brings investment decisions closer to the optimum, which in turn increases output. The more precise the forecast, the more a forecast of good rainfall will improve investment.

This is interesting and important work. One of the key distinctions of development economics relative to other fields of economics is that it takes into account heterogeneity and recognizes it as a cause of underdevelopment. Here, there are a few sources of heterogeneity: first, whether a rainfall forecast is available at all and second, whether that forecast is good.

Rivals in other lands have sniffy theories about why America, a rich country, is so good at producing cheap food. They paint American farmers as pawns of giant agri-corporations, bullied by market forces to produce genetically modified Frankenfoods. Lexington has not forgotten the face pulled by a French agriculture minister, interviewed during a previous posting to Europe, as he mocked America’s “aseptic” farm produce.

Foreign rivals are right about the power of market forces in America, but wrong to see its farmers as passive victims. Americans have thought differently about agriculture for a long time—and not by accident. Settled in a rush of migration, peaking in the 1880s, Nebraska’s prairies were parcelled out to German, Czech, Danish, Swedish and even Luxemburgish pioneers. From the start the plan was to convert Old World homesteaders to the scientific ways of the New World. As the system developed, Congress sent county agents from universities to teach menfolk modern farming and their wives such skills as tomato-canning. In the 1920s educational trains trundled through the prairies, pulling boxcars of animals and demonstration crops. At each stop, hundreds would gather for public lectures. Older folk resisted such newfangled ideas as planting hybrid corn bought from merchants rather than seedcorn from their own harvests. Enter the 4-H movement, which gave youngsters hybrid seeds to plant, then waited for the shock as children’s corn outgrew their parents’. Later youngsters promoted such innovations as computers.

Because America was a new country, argues Greg Ibach, head of agriculture in Nebraska’s state government, a primary concern was feeding a growing population and moving food large distances. Europeans fussed about appellations and where food came from. Americans “treated food as commodities”.

A great, highly instructive read from Lexington titled “Farming as Rocket Science” in The Economist.

A recent Twitter conversation I had with other social scientists made me reflect upon the state of my own discipline when it comes to standards of evidence. That is, about when we can say that we are fairly certain about a specific conclusion drawn from analyzing data.

The conversation began when Raul Pacheco-Vega said “I love experimental methods, but being obsessed with it is unhealthy.”

I responded that what is unhealthy is the attitude according to which “the only good research questions are the ones that can be randomized.” That is, the mode of thinking – dominant among certain empirical economists – according to which if a research question does not lend itself to randomization, it is not worth one’s time to try answering that research question.