National Institutions and Self-Insurance

Abstract

This paper studies the relationship between national institutions and farming practices in Africa. The analysis exploits detailed geospatial data to compare farming practices across nearby plots exposed to the same underlying agroclimatic risk but belonging to adjacent countries with different national institutions. We develop a novel approach to measure crop risk without information on local prices, and use this methodology to assess how formal institutions affect decisions to cultivate “safer” versus “riskier” crops. The results show significant cross-border differences in outcomes. In countries with worse national institutions, farmers grew lower risk crops, diversified land across more different crops, and devoted more total land to agriculture. The findings cannot be attributed to cross-border differences in market access. Instead, the patterns are consistent with a setting in which differences in the expropriation of wealth and non-farm income affect how farmers respond to agroclimatic risk.