Intertemporal Choice and Income Regularity: Non-Fungibility in the Timing of Income among Kenyan Farmers

Berber Kramer*, David Kunst

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

The optimal design of informal contracts in agricultural value chains depends on when farmers prefer to be paid for their output. While the evidence from time preference experiments suggests a preference for early payments, field studies often indicate that farmers will defer regular payments if given the opportunity. In this study, we explicitly test whether farmers are more patient regarding regular, earned income than regarding experimental windfall payments. We asked farmers in a dairy cooperative in Kenya to allocate both their milk income and a one-time gift between an early and a deferred payment date. We find that a large majority of participants deferred their milk payments, while rarely choosing to defer the gift. Participants’ survey responses suggest that we observe this difference because of mental accounting: participants earmarked their regular milk payments, but not the gift, to save for bulky expenditures. We conclude that deferred payments can provide value to producers by functioning as a savings device, even when decisions over windfall income suggest a preference for early payments.

Original languageEnglish
Pages (from-to)1048-1064
Number of pages17
JournalJournal of Development Studies
Volume56
Issue number5
Early online date5 Jul 2019
DOIs
Publication statusPublished - 3 May 2020

Funding

This work was undertaken as part of the CGIAR Research Program on Policies, Institutions, and Markets (PIM) led by the International Food Policy Research Institute (IFPRI). We gratefully acknowledge funding from IFPRI?s Strategic Innovation Fund for Associate Research Fellows and we thank the COVDA team (Edward Yano, Stephen Mutwol, Janet Jepkosgei and Josephine Seurey) for their dedication to data collection. We received valuable suggestions from our anonymous referees, Glenn Harrison, Remco Oostendorp, Peter Lanjouw, seminar participants at IFPRI, the Vrije Universiteit Amsterdam, as well as participants in the 2016 CEAR-CSAE workshop ?Eliciting Subjective Beliefs and Risk and Time Preferences in Developing Countries?, the CSAE Conference 2017 and the 2018 Symposium on Economic Experiments in Developing Countries (SEEDEC) in Wageningen. Replication data and code are available for use under a Creative Commons 4.0 license, and can be downloaded in STATA format from https://doi.org/10.7910/DVN/0KKKUS.

FundersFunder number
CSAE
International Food Policy Research Institute
Consortium of International Agricultural Research Centers

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