Behavioral challenges in ag development

Robin Hanson passes along this illuminating and frustrating anecdote:

There are higher-yielding varieties of groundnut than those that farmers in Malawi tend to plant, but getting them to switch is tough. Better seed is pricey, increasing their risk. So researchers from the World Bank ran an experiment. With local NGOs, they offered the farmers loans. Some loans even came with a crop-insurance policy: if the season was dry and the yield a dud, the debt would be forgiven. The farmers’ risk was lowered. Of farmers offered conventional loans, 33% signed up. With the added incentive of insurance, 18% did. The researchers were puzzled.

It’s been more than 30 years since microfinance began its fantastic rise, spreading billions of dollars in credit to hundreds of millions of overlooked borrowers around the world. Insurance is the next big promise of financial services for the poor. But there aren’t many takers. That’s not from lack of interest on the part of suppliers. The Gates Foundation has plowed millions of dollars into microinsurance initiatives...

Hanson speculates that people (obviously not rational actors) buy insurance more for signaling purposes than to improve their actual risk profile:

My best guess is that most insurance is bought not to reduce risk but instead to signal prudence and caring. The first life insurance companies had a terrible time selling “bets on their death,” and only succeded when they framed insurance as what a caring and prudent husband and father did to take care of his family. While simple adverse-selection theories predict that high risk folks buy the most insurance, in fact low risk folks buy more insurance. And we don’t want to insure our big life risks because such a desire would signal a lack of confidence in our prospects.

Poor folks want loans because they want the money, but to want insurance they’ll have to want to signal prudence and caring, above and beyond the signals they now use. Seems a hard sell to me.

Sounds like a tough nut to crack, and illustrative of the huge challenge of improving pitiful agricultural yields in poor countries, compared to their agroecological potential.