A non-cooperative approach to rural development issues

In developing countries, a large fraction of the population draws its daily livelihood from small scale farming. Even in a context of poverty, the increasing pressure on agricultural resources should be a source of opportunities for farmers. However, rural households are often faced with institutional constraints that impede their ability to react to stronger economic incentives. More precisely, this work aims at highlighting the combined impact of missing markets, namely credit and insurance, and imperfect contracting on farmers' wellbeing and production decisions. This question is addressed by making use of applied non-cooperative game theory. The sources and consequences of contract unenforceability are first discussed in the specific context of export crop production and marketing. Farmers' lack of liquidity and strategic interaction among agricultural traders are shown to result in an inefficiently low level of input use. A second and central part of this work focuses on households' exposure to risk and the way production decisions and hence growth opportunities are affected by risk. It is argued that institutional substitutes to formal insurance transactions are undermined by imperfect contracting. Moreover, it is shown that poor households are more likely to suffer from a lack of informal protection. As a consequence, they are more reluctant to make risky but profitable production or technological choices and cannot escape poverty traps. On the one hand, we argue that limited commitment may hamper households' diversification strategies. Taking migration as an illustration, we argue that, if undertaking an alternative business is costly and if family members lack credible means of incentive provision, the family diversification level will prove insufficient. On the other hand, we show that, due to imperfect contracting, community risk-sharing mostly benefit to relatively rich households, better endowed in buffer stocks. Finally, vulnerability to health shocks depends on both access to and quality of health care. We therefore provide a study on how these aspects are affected by the health care provider's prescription decisions. The incentive contents of the contractual setting is properly depicted and analysed.