Dairy Intervention in Rural India, 2009-2012

Aimed to elicit subjective expectations of investment returns and future costs from the rural poor in India, in order to model individual investment behaviour. The bulk of the literature on the issue focuses exclusively on actual outcomes and makes strong assumptions, such as rational expectations and homogeneous beliefs to proxy expectations. This project used a different approach: data on subjective expectations was elicited from respondents to a household survey, and was directly analysed. The information the agents possess and the beliefs they have determined the possible outcomes foreseen and their subjective probabilities. Examination of subjective expectations can be instructive about the accuracy of these expectations. The analysis of how investment behaviour relates to expectations is informative about the functioning of credit and insurance markets: a definition of credit market failure is the presence of expected returns above the market interest rate that do not generate investment activities. The research findings will contribute to the understanding of credit market failures and inform policies to address these.

The household survey was conducted in Anantapur, India, a district in the state of Andhra Pradesh. Interviews were conducted in 67 villages. This study includes data from the second wave of the survey only, for which face-to-face interviews were conducted with 951 households who had been previously interviewed. Further information about the project may be found on the Subjective expectation, expected investment return and investment decisions: market imperfections and misperceptions in rural India ESRC award page.

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