Agricultural Input Subsidies, Credit Constraints and Aid Expectations: Evidence from Haïti

Smart subsidy programs, which have been advocated to increase the adoption of modern inputs and agricultural productivity, might affect farmers' production decisions in other ways than removing credit constraints. We use data... [ view full abstract ]

Smart subsidy programs, which have been advocated to increase the adoption of modern inputs and agricultural productivity, might affect farmers' production decisions in other ways than removing credit constraints. We use data from a randomized control trial to examine the effects of a subsidy program in Haiti which provided, through vouchers, subsidies for modern inputs (labor tasks, fertilizer, and pesticides) for rice during one season. Instead of increasing input use, subsidies seem to have led farmers to using lower quantities of inputs, and to paying off their loans and taking less new ones. The decline in input use persists in the next agricultural season. Using data from a complementary information intervention, when randomly selected farmers were provided clarifications regarding their status in the program, we find evidence that incorrect expectations of future transfers led farmers to reduce their investments in the subsidized inputs and contribute to explain the disappointing outcomes.