A Well-Timed Nudge

Categories : Agriculture, Customer and Users of Digital Payments


Author: Innovation for Poverty Action

A small “nudge” at the appropriate time was as powerful as a heavy subsidy—and may be a better policy. Critics of fertilizer subsidies contend that they promote overuse of fertilizer, leading to environmental damage and ultimately reduced effectiveness. Large subsidies are also fiscally costly, typically regressive (bene ting the wealthiest farmers most), and often necessitate that the government get involved in fertilizer distribution. A SAFI-style (Savings and Fertilizer Initiative) program could reduce these negative side effects, since the smaller incentive would not promote overuse among farmers who are able to save money for fertilizer.

To compare the relative desirability of heavy subsidies, a SAFI-style program, and no intervention, the researchers created a model to estimate which policy option delivers the highest welfare—i.e. which makes society as a whole better off. They find that a SAFI-style program improves welfare relative to taking no policy action, and it may provide larger welfare gains than heavy subsidies. Read more about the results and impact here.