CSTIO Seminar with Prof Jeannette Song (Duke University)

Index-Based Yield Protection for Smallholder Farmers

Abstract

We investigate a recently developed index-based yield protection policy in emerging economies, designed to shield small farmers from low crop yields. This policy uses a predetermined index, like rainfall, to trigger subsidy payments, sidestepping the costs of traditional yield assessments. Our study focuses on a significant oversight in current implementations—the accuracy of this index. We analyze its impact on optimal subsidy designs through a game theoretic framework involving local governments and risk-averse farmers. Our findings reveal that increases in index-based subsidies can raise farmer income variance due to potential inaccuracies in yield prediction. There exists a non-monotonic relationship between subsidy levels and index accuracy. Additionally, while price protection—another common subsidy aimed at offsetting low market prices—is typically seen as a strategic substitute for yield protection, our results suggest they function as strategic complements when index accuracy is low. Surprisingly, tighter governmental budgets may encourage greater investment in index accuracy. These insights challenge conventional wisdom on agricultural subsidies and illustrate complex trade-offs introduced by index inaccuracies, providing valuable guidance for policy design in smallholder contexts.  

Paper link: https://ssrn.com/abstract=4734791

About the speaker

Jing-Sheng Jeannette Song is the R. David Thomas Professor of Business Administration and a Professor of Operations Management at the Fuqua School of Business of Duke University. She studies various facets of supply chain management and operations strategy. Her recent research covers topics like supply chain digitization, data-driven operations decision-making, inventory strategies to enhance supply chain resilience, and responsible operations. She has published numerous articles in leading academic journals, such as Management Science, Operations Research, and Manufacturing & Service Operations Management. She has edited and co-edited two books, “Research Handbook on Inventory Management” and “Supply Chain Structures: Coordination, Information and Optimization.” She has also co-authored the book “The Art of Matching: Joy of Living and Operations Innovations” (in Chinese). Professor Song is an INFORMS Fellow, an MSOM Fellow, and former president of MSOM. She is also a Department Editor for Management Science and a former Area/Department Editor for Operations Research, Service Science, and IIE Transactions.