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Agricultural Loans and Strategic Default: Evidence from China and U.S.

Chen, Jian
http://orcid.org/0000-0002-7373-7527
http://rave.ohiolink.edu/etdc/view?acc_num=osu1557142004653804

Abstract Details

2019, Doctor of Philosophy, Ohio State University, Agricultural, Environmental and Developmental Economics.
Agricultural loans provide access to credit to farmers in rural areas across the world. In the developing countries, joint liability group lending has been widely credited with raising incomes and reducing poverty among the poor, while reducing rates of default and delinquency on loans. However, recent research has brought these claims into question (Attanasio et al., 2015; Gine and Karlan, 2014). In the developed world, the U.S. agricultural financial market has gone through some tough times in the past several decades. Understanding the factors that drive the agricultural financial crisis would allow policymakers to recommend appropriate financial management strategies and help ensure the short- and long-term survival of businesses. This dissertation seeks to investigate the efficiency of agricultural loan contracts in both developing and developed contexts. In Chapter 1, I provide a brief introduction to the joint liability group lending contract among small-scale farmers in developing countries and traditional agricultural loans among U.S. farmers. Chapter 2 and Chapter 3 of my dissertation contribute to the growing debate over the merits of joint liability versus conventional individual liability, as well as to the emerging literature on optimal joint liability group lending contract design. In Chapter 2, I construct and analyze a dynamic game model of joint liability group lending to poor farmers. The model reveals that systemic risk, that is, high correlation among the incomes of the borrowers, increases rates of default. I then examine the impacts of coupling joint liability group credit with index insurance (e.g., drought or flood insurance). I find that index insurance can substantially reduce rates of default in joint liability group lending contracts, thereby increasing lender profitability, and potentially lending to reduced interest rates and increased supply of credit for poor farmers. In Chapter 3, I report results of a lab-in-the-field experiment that I conducted in rural China to disentangle two key components of joint liability group credit—joint liability structure, the requirement that members within a group be jointly responsible for loan repayment, and group structure itself, the group process that makes behaviors public knowledge. I investigate how these components leverage social capital to promote repayment of group loans. My results confirm the positive effect of group aspect on repayment regardless of liability structure, providing one possible explanation as to why repayment rates do not change significantly when removing joint liability from group loans in some studies. In Chapter 4, I turn to studying agricultural financial markets in developed countries, which are generally characterized by more advanced informational and legal infrastructures. U.S. agricultural financial markets have experienced some tough times. In this environmental, it has become increasingly important to precisely predict the financial crises in the agricultural sector and understand the causes of their occurrence. However, studies of financial stress in the agricultural sector remains limited. In Chapter 4, I compare the predictive performance of standard logistic regression and seven machine learning methods on high delinquency rates of agricultural loans in U.S., and identify the determinants of such risk.
Mario Miranda (Advisor)
Jon Einar Flatnes (Committee Co-Chair)
Ani Katchova (Committee Member)
129 p.
Agricultural Economics; Behavioral Sciences; Economics; Experiments; Finance

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Citations

  • Chen, J. (2019). Agricultural Loans and Strategic Default: Evidence from China and U.S. [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1557142004653804

    APA Style (7th edition)

  • Chen, Jian. Agricultural Loans and Strategic Default: Evidence from China and U.S. 2019. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1557142004653804.

    MLA Style (8th edition)

  • Chen, Jian. "Agricultural Loans and Strategic Default: Evidence from China and U.S." Doctoral dissertation, Ohio State University, 2019. http://rave.ohiolink.edu/etdc/view?acc_num=osu1557142004653804

    Chicago Manual of Style (17th edition)

osu1557142004653804
440
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This open access ETD is published by The Ohio State University and OhioLINK.