Description:

Speaker: Matteo Ruzzante (Northwestern University)

Title: "Equity-Efficiency Tradeoffs in the Design of Agricultural Input Subsidies: Experimental Evidence from Mozambique" (with Paul Christian, Steven Glover, Florence Kondylis, John Loeser, and Astrid Zwager)

Abstract: Low use of modern inputs limits agricultural productivity in Africa, motivating widespread input subsidy programs. Yet, these subsidies often prove regressive and inefficiently distort the choices of already optimizing farmers. We show, theoretically and empirically, that nonlinear input subsidies trade off equity and efficiency but can improve both. We experimentally evaluate a progressive agricultural input subsidy in Mozambique with a declining marginal subsidy rate, by cross-randomizing additional subsidies for small and large quantities of inputs. Increasing subsidies for small quantities improves equity by acting as a transfer to inframarginal poorer households, as poor households are more likely to redeem smaller quantities of inputs. Increasing subsidies for large quantities of inputs improves efficiency by increasing fertilizer use among farmers using intermediate quantities of inputs, as they are the most marginally productive.