CREDIT MARKET CONSTRAINTS, CONSUMPTION SMOOTHING, AND THE ACCUMULATION OF DURABLE PRODUCTION ASSETS IN LOW-INCOME COUNTRIES - INVESTMENTS IN BULLOCKS IN INDIA

In this paper we formulate and estimate a finite-horizon, structural d ynamic model of agricultural investment behavior that incorporates the major features of low-income agricultural environments: income uncert ainty, constraints on borrowing and rental markets, and the use of inv estment assets to generate income and smooth consumption. The model is fit to longitudinal Indian household data on farm profits, bullock st ocks, and pump sets. The estimated structural parameters are used to a ssess the effects on the life cycle accumulation of bullocks, agricult ural profits, and welfare associated with complete markets and bullock liquidity and with second-best policies that provide assured sources of income to farmers and weather insurance.