Credit Considerations

Let us consider the case where the farmer is facing an upper-bound constraint on ability to borrow denoted by R per unit of land. Suppose that the farmer needs to borrow funds to pay for his pesticides purchase and any amount of fixed cost behind F0. Without loss of generality, let us assume that Fo = 0. Let nf = mJpy? I1 - D(NBihi ))] - -Fi-StF' 1

denote the profit maximization outcome with variety i under the credit constraints. Let the optimal pesticide use with variety i under the credit constraint be xf* < x*. The implications of the credit constraint depend on the relative magnitudes of the extra fixed costs of the GMV, the price of pesticides, and the factors that determine the use of pesticides with different varieties. We present some plausible outcomes. In particular:

(a) The credit constraint will prevent adoption when Fg and Fm> R and kit™ >0.

(b) The credit constraint will lead to adoption of the generic GMV instead of the local GMV when Fm> R> Fg and An™ > A n80 > 0.

(c) The credit constraint will enhance adoption when it restricts purchase of pesticides with the traditional variety. If the GMV is affordable, Fm< R, and w is relatively expensive, the pesticide use under the credit constraint is xf* = R/w < x*, and the gain from adoption under the credit constraint is greater than without it, ncm-7tc0> A<.

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