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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Farm input use in a context of liquidity constraints and contract unenforceability
Author:Delpierre, MatthieuISNI
Periodical:Journal of African Economies
Geographic term:Africa
Subjects:cash crops
agricultural trade
contract farming
agricultural credit
External link:https://jae.oxfordjournals.org/content/18/3/496.full.pdf
Abstract:The African cash crop sector has witnessed widespread liberalization reforms aimed at strengthening price incentives to farmers. However, some areas are confronted with a decline in input use. The author has recourse to a two-stage Cournot game to account for the issue. In a context of credit rationing and imperfect contract enforceability, competition has the effect of tightening the input availability constraint while increasing the shadow value of credit. First, contrary expectations, the impact of an extension of access to farm credit on aggregate input use, efficiency and peasants' income is shown to be ambiguous. Intuitively, relaxing the liquidity constraint entails a higher price elasticity of supply that results in a reduction of traders' profit margin. As a consequence, traders' incentives to contribute to input availability are weakened. The effects of subsidizing inputs are also analysed. Second, normative insights are drawn regarding second best combinations of imperfect credit and output markets. Finally, the issue and consequences of contract unenforceability are discussed. App., bibliogr., notes, ref., sum. [Journal abstract]