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Measuring risk attitudes among Mozambican farmers:

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  • de Brauw, Alan
  • Eozenou, Patrick

Abstract

Although farmers in developing countries are generally thought to be risk averse, little is known about the actual form of their risk preferences. In this paper, we use a relatively large field experiment to explore risk preferences related to sweet potato production among a sample of farmers in northern Mozambique. We explicitly test whether preferences follow the constant relative risk aversion (CRRA) utility function and whether farmers follow expected utility theory or rank dependent utility theory in generating their preferences. We find that we can reject the null that farmers'preferences follow the CRRA utility function in favor of the more flexible power risk aversion preferences. In a mixture model, we find that about three-fourths of farmers in our sample develop risk preferences by rank dependent utility. We also find that by making the common CRRA assumption in our sample, we poorly predict risk preferences among those who are less risk averse.

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series HarvestPlus Working Papers with number 6.

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Date of creation: 2011
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Handle: RePEc:fpr:harvwp:6

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Keywords: Sweet potato; Risk preferences; constant relative risk aversion (CRRA); farmers preferences;

References

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  1. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  2. Gine, Xavier & Yang, Dean, 2007. "Insurance, credit, and technology adoption : field experimental evidence from Malawi," Policy Research Working Paper Series 4425, The World Bank.
  3. Jeffery Carpenter & Juan Camilo Cardenas, 2006. "Behavioural Development Economics: Lessons from field labs in the developing world," Middlebury College Working Paper Series 0616, Middlebury College, Department of Economics.
  4. Hill, Ruth Vargas & Viceisza, Angelino, 2010. "An experiment on the impact of weather shocks and insurance on risky investment," IFPRI discussion papers 974, International Food Policy Research Institute (IFPRI).
  5. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-71, March.
  6. Mette Wik & Tewodros Aragie Kebede & Olvar Bergland & Stein Holden, 2004. "On the measurement of risk aversion from experimental data," Applied Economics, Taylor & Francis Journals, vol. 36(21), pages 2443-2451.
  7. Ruth Vargas Hill, 2009. "Using Stated Preferences and Beliefs to Identify the Impact of Risk on Poor Households," Journal of Development Studies, Taylor & Francis Journals, vol. 45(2), pages 151-171.
  8. Stefan Dercon & Luc Christiaensen, 2007. "Consumption risk, technology adoption and poverty traps: evidence from Ethiopia," CSAE Working Paper Series 2007-06, Centre for the Study of African Economies, University of Oxford.
  9. Glenn Harrison & E. Rutström, 2009. "Expected utility theory and prospect theory: one wedding and a decent funeral," Experimental Economics, Springer, vol. 12(2), pages 133-158, June.
  10. Sachiko Miyata, 2003. "Household's risk attitudes in Indonesian villages," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 573-583.
  11. Mahmud Yesuf & Randall A. Bluffstone, 2009. "Poverty, Risk Aversion, and Path Dependence in Low-Income Countries: Experimental Evidence from Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 1022-1037.
  12. Stephen R. Boucher & Michael R. Carter & Catherine Guirkinger, 2008. "Risk Rationing and Wealth Effects in Credit Markets: Theory and Implications for Agricultural Development," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(2), pages 409-423.
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Citations

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Cited by:
  1. Ward, Patrick S. & Singh, Vartika, 2013. "Risk and Ambiguity Preferences and the Adoption of New Agricultural Technologies: Evidence from Field Experiments in Rural India," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150794, Agricultural and Applied Economics Association.
  2. Ihli, Hanna Julia & Chiputwa, Brian & Musshoff, Oliver, 2013. "Do Changing Probabilities or Payoffs in Lottery-Choice Experiments Matter? Evidence from Rural Uganda," Discussion Papers 158146, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
  3. Deb, Rahul & Suri, Tavneet, 2013. "Endogenous emergence of credit markets: Contracting in response to a new technology in Ghana," Journal of Development Economics, Elsevier, vol. 101(C), pages 268-283.

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