Managing business and personal finances can be an immense challenge for rural farmers, whose financial fortunes are frequently determined by forces beyond their control such as weather and crop prices. Farmers who might increase their productivity and their incomes by making new investments in agricultural inputs are wary of the potential riskiness of the outcomes. In Ghana, where 52% of Ghana's population lives in rural areas and 44% of the rural population lives below the poverty line, the situation seems particularly acute.

Due to these uncontrollable risks, some farmers are reluctant to take loans to finance seemingly profitable ideas for fear of not being able to repay. That farmers often abstain from potentially productive investments may be explained by two distinct hypotheses. It may be that farmers are risk averse, and fear the unknown outcomes of new ventures. Equally likely, farmers may refrain from investments because they lack the initial capital to do so. By examining how insurance products and capital shocks impact farmers' investment decisions, this study will distinguish between the effects of risk aversion and of capital constraints on farmers' behavior.

470 maize farmers from three districts in northern Ghana have been randomly allocated into one of four groups. Three different treatments are marketed to farmers and measured in this study: the direct transfer of capital, a rainfall insurance product, or both the transfer of capital and the insurance product. The fourth group of farmers receives no treatment, but are monitored and surveyed as the control group. The outcomes measured include: size of farm plot; number and variety of crops planted; inputs used, including equipment, labor, chemicals, and seeds; amount and value of crops harvested; and household income, consumption, and nutrition.