Productivity Shocks and Repayment Behavior in Rural Credit Markets - A Framed Field Experiment

Jul 19, 2026

Improving rural credit markets requires understanding root causes of market failures and implementing measures to address them. This paper examines how productivity shocks shape borrowers’ repayment decisions. Using a framed field experiment that simulated a repeated interaction in an input credit market, the study finds strong evidence that adverse productivity shocks increase default even without negative returns. Results remain robust when information exchange enforces dynamic incentives, with implications for climate change-driven recurring shocks.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages50

Reading Time2 h 6 min

Abstract

Introduction

Public Disclosure Authorized Public Disclosure Authorized AUTHOR ACCEPTED MANUSCRIPT FINAL PUBLICATION INFORMATION Productivity Shocks and Repayment Behavior in Rural Credit Markets A Framed Field Experiment The definitive version of the text was subsequently published in The Journal of Development Studies, 56(10), 2020-10 Published by Taylor and Francis and found at [http://dx.doi.org/10.1080/00220388.2019.1640873](http://dx.doi.org/10.1080/00220388.2019.1640873) THE FINAL PUBLISHED VERSION OF THIS MANUSCRIPT IS AVAILABLE ON THE PUBLISHER’S PLATFORM This Author Accepted Manuscript is copyrighted by World Bank and published by Taylor and Francis. It is posted here by agreement between them. Changes resulting from the publishing process—such as editing, corrections, structural formatting, and other quality control mechanisms—may not be reflected in this version of the text. You may download, copy, and distribute this Author Accepted Manuscript for noncommercial purposes. Your license is limited by the following restrictions: (1) You may use this Author Accepted Manuscript for noncommercial purposes only under a CC BY-NC-ND 3.0 IGO license [http://creativecommons.org/licenses/by-nc-nd/3.0/igo](http://creativecommons.org/licenses/by-nc-nd/3.0/igo). (2) The integrity of the work and identification of the author, copyright owner, and publisher must be preserved in any copy. (3) You must attribute this Author Accepted Manuscript in the following format: This is an Author Accepted Manuscript by Adjognon, Guigonan Serge; Liverpool-Tasie, Lenis Saweda; Shupp, Robert Productivity Shocks and Repayment Behavior in Rural Credit Markets © World Bank, published in the The Journal of Development Studies56(10) 2020-10 CC BY-NC-ND 3.0 IGO [http://creativecommons.org/licenses/by-nc](http://creativecommons.org/licenses/by-nc)nd/3.0/igo [http://dx.doi.org/10.1080/00220388.2019.1640873](http://dx.doi.org/10.1080/00220388.2019.1640873) © 2021 World Bank 1 Productivity Shocks and Repayment Behavior in Rural 2 Credit Markets: A Framed Field Experiment 3 Abstract 4 Improving rural credit markets requires a good understanding of the root 5 causes of market failures and taking necessary steps to address them. This 6 paper investigates the role of productivity shocks in borrowers repayment 7 choices. Using a framed 􀀌eld experiment that simulated a repeated interac- 8 tion in an input credit market, the analysis 􀀌nds strong evidence that adverse 9 productivity shocks lead to higher default, even when they do not induce neg- 10 ative returns. This relationship is robust to the presence of an information 11 exchange system enforcing dynamic incentives. The 􀀌ndings suggest that 12 recurrent shocks such as those resulting from the harmful e􀀋ects of climate 13 change could exacerbate failures in rural credit markets, undermining hard- 14 won progress toward rural 􀀌nancial inclusion. 15 16 JEL classi􀀌cation: Q14, O16, O13 . 17 Keywords: Credit, Rural, Agriculture, Financial Inclusion May 17, 2019 18 1. INTRODUCTION 19 Access to credit remains limited for many rural households in developing 20 countries, due primarily to default risks associated with information asymme- 21 tries and weak institutions for contract enforcement (Dorward et al., 1998; 22 Poulton et al. , 1998; Sadoulet, 2005; Tedeschi, 2006; Conning and Udry, 23 2007) . 24 The micro-􀀌nance literature has documented the use of dynamic incen- 25 tives as an e􀀋ective alternative to asset collateralization and group lending, 26 for overcoming opportunistic default in rural credit markets (Luoto et al. , 27 2007; Tedeschi, 2006; De Janvry et al., 2010), and output markets (Macchi- 28 avello and Morjaria, 2015) . The use of trade credit has also been discussed 29 as alternative to bank credits on the premise that in-kind credit is harder to 30 divert than cash (Giannetti et al., 2011; Burkart and Ellingsen, 2004) . This 31 paper

FAQs

What question does the paper investigate?

The paper studies how productivity shocks influence borrowers’ repayment choices in rural credit markets.

What experimental approach does the paper use?

It uses a framed field experiment simulating a repeated interaction in an input credit market.

Do adverse productivity shocks increase default even when returns stay non-negative?

Yes. The findings show higher default following adverse productivity shocks even when they do not induce negative returns.

Jul 19, 2026

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