Agricultural Finance, Intertemporal Decision-Making, and the Investment Trap in Nigerian Smallholder Farming Systems

Smallholder farming households in Nigeria frequently appear trapped in low-investment, low-productivity equilibria that persist even when profitable technologies are available and known to farmers. Classical models of technology adoption and farm investment predict adoption whenever expected returns exceed investment costs, yet persistent non-adoption is widely observed. This dissertation develops an intertemporal farm household model incorporating hyperbolic discounting, credit constraints, and background risk to explain the investment trap as an equilibrium outcome rather than a transitional state. The model generates testable predictions about the relationship between time preferences, credit access, covariate risk exposure, and long-term investment behaviour. The empirical strategy uses a novel dataset of 450 farm households in Plateau, Taraba, and Benue States in Nigeria's North Central and North East zones, incorporating incentivised elicitation of discount rates and risk preferences alongside longitudinal investment observations. Regression discontinuity design around credit eligibility thresholds and instrumental variable estimation using variation in financial service access are used for causal identification. Results confirm that present-biased time preferences significantly reduce long-term agricultural investment, but the effect is moderated by commitment savings device access. Credit constraints and covariate rainfall risk interact to reinforce the investment trap for households above subsistence consumption levels. The study makes theoretical contributions by integrating hyperbolic discounting into the standard agricultural household investment model and demonstrates that commitment savings and index insurance in combination break the investment trap mechanism in the study contexts. Keywords: intertemporal decision-making, investment trap, hyperbolic discounting, credit constraints, Nigerian smallholder