Agricultural Economics—Without Apology
An anonymous reviewer opens his or her remarks on an article I had submitted for publication in the following unintentionally hilarious fashion:
I am willing to accept the principal finding in this paper (food price levels matter more than price volatility in driving social unrest), in part because others (e.g., Bellemere [sic]) have drawn a similar conclusion.
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.
Development Bloat
That’s how a former student who works for one of the biggest development organizations in the world expressed his frustrations with development and aid work these days when I had dinner with him in Washington, DC last summer. In my student’s view, “development” had become too many things.
I was initially skeptical of his claim. After all, one of the first things I teach the students in my development seminar is that there are no silver bullets; the causes of underdevelopment are many, and tackling just one problem is unlikely to lift an entire country out of poverty.
But the more I think about it, the more I remember often having had a “That is development?” reaction when reading articles about development in academic journals, specialized magazines, and newspapers. For example, here is a list of things that are considered by many to be part of the process of development: