Risk and Farming in Rural Nicaragua

The vast majority of rural households in the developing world engage in subsistence agriculture as a means of meeting their economic needs. These small farms have low yields, which keeps the incomes of farmers down. Part of this is because these farmers under-utilize agricultural inputs, such as fertilizer and pesticide. In this proposal we seek to understand why farmers use so little agricultural input by distinguishing between two potential explanations. First, at very low income levels people are less willing to take risk, since negative outcomes may pose food security challenges. Agricultural inputs are a risk because a bad growing season may render the inputs useless. Second, households may lack the funds to buy the inputs, or the ability to borrow. To distinguish between these two mechanisms we propose to conduct detailed household surveys and use variation in the composition earnings within households to determine which constraints are most salient.