Rational Expectations? Evidence from Planting Decisions in Semi-Arid India

The optimal time to plant in rainfed semi-arid India is at the onset of the monsoon. While planting too early may result in losses because the seeds may not germinate if the first rains are not followed by subsequent rains, postponing planting for too long is also costly, because yield will typically be lower. Given that mistakes about the precise timing of the monsoon are costly, in this paper we study the differences in the accuracy of subjective expectations that farmers have regarding the timing of the onset of the monsoon. We find that (i) in the region where ∗Financial support from CRMG, World Bank and GARP is gratefully acknowledged. We want to thank Kumar Acharya, the survey team at ICRISAT and specially Dr. K.P.C Rao for many discussions about agricultural practices in semi-arid India and for their efforts in collecting the survey data. Dr. Piara Singh from ICRISAT provided valuable help in the computation rainfall absorption of different soil types. We also thank Don Larson from the World Bank for his valuable advice and encouragement. Paola de Baldomero Zazo, Helene Bie Lilleor and Joan Pina Mart́ı provided outstanding research assistance. The views expressed in this paper are the authors’ and should not be attributed to the World Bank, Federal Reserve Bank of New York or the Federal Reserve System. Email addresses: [email protected], [email protected], and [email protected].