Expecting too much, foreseeing too little? Behavioral explanations for the sell low-buy high puzzle in smallholder market participation
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International Food Policy Research Institute
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It is often observed that smallholder farmers sell most of their marketable surplus immediately after the harvest when seasonal price movements reach their lowest point, instead of waiting just a few more months until prices recover. Most explanations for this seemingly sub-optimal behavior focus on economic or infrastructural issues, such as credit constraints or lack of storage facilities. In this study, we take a closer look at two potential behavioral explanations. One explanation focuses on household expenditure and assumes that households face challenges in accurately predicting future expenditures, systematically underestimating future needs. A second potential explanation focuses on household income, where motivated reasoning leads farmers to sell too early and/or at low prices. To test these hypotheses, we conduct two planning-based interventions among a sample of Malawian smallholder farmers: (1) a detailed expense budget and (2) a sales plan with explicit commitment to timing of sales, quantities and prices. The treatments were administered at harvest time in May 2022 and April 2023.
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household income, prices, smallholders, surpluses