Credit Constraint, Interlinked Insurance and Credit Contract and Farmers’ Adoption of Innovative Seeds-Field Experiment of the Loess Plateau

Abstract

The interlinked insurance and credit contract is an emerging model of agricultural insurance in China. However, the development of interlinked insurance and credit contract and farmers’ demands for it are poorly understood. Based on the wheat farmers on the Loess Plateau in China, a field experiment is employed to obtain dynamic choice data from 415 farmers. We empirically analyzed the inhibitory effect of credit constraint on farmers’ adoption behavior of innovative seeds and also explored the heterogeneity of farmers’ innovative seeds adoption due to the availability of interlinked insurance and credit contract. The results illustrate that credit constraint can hinder farmers’ innovative seeds adoption significantly, and interlinked insurance and credit contracts can encourage farmers to adopt innovative seeds effectively by dispersing natural risks and alleviating credit rationing. Further, constrained by low education levels in China’s rural areas, providing interlinked insurance and credit contract to farmers is not beneficial to enhance farmers’ innovative seeds adoption. In addition, farmers who are relatively poor may underestimate the benefits of innovative seeds at the beginning of planting, making their adoption behavior have some delayed effect. This research provides a new perspective for promoting the spread of innovative technology in rural areas.