Inventory Credit as a Commitment Device to Save Grain Until the Hunger Season

Abstract

AbstractIn January 2013, we collected data from 653 farmers in Burkina Faso, who were asked hypothetical questions about risk aversion and time discounting. Ten months later, these farmers were offered the opportunity to participate in an inventory credit system, also called warrantage, in which they receive a loan in exchange for storing a portion of their harvest as a physical guarantee in one of the newly‐built warehouses of the program. We found that a significant number of farmers chose to store grain in the warehouse without taking the maximum amount allowed for a loan in return, and that farmers who exhibit a stronger present bias were significantly more likely to participate in the warrantage system than other, otherwise similar, farmers. We interpret these results as evidence that farmers use warrantage as a means to commit to saving a portion of their crop until the lean season. These results are in line with the main predictions of our theoretical model, which explicitly takes the hyperbolic nature of farmers' time preferences into account.