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Heterogeneous Risk Preferences, Discount Rates and Land Contract Choice in Ethiopia


  • Mintewab Bezabih


This paper analyses the role of risk and rate of time preference in the choice of land contracts. The analysis builds on the risk-sharing and imperfect market explanations of contract choice. Unique data from Ethiopia, which contain land contract information and experimental risk and rate of time preference measures on matched landlord-tenant partners, are employed in the empirical analysis. The results show that landlord and tenant time preferences are significant determinants of contract choice. For landlords (but not tenants), risk preference is also significant, indicating the importance of financial constraints and production risk in the determination of contract choice. The results are of particular relevance to land market policy in Ethiopia, where production is risk-prone, financial markets are imperfect, and where there is a major need for the development of vibrant land rental markets. Copyright (c) 2009 The Author. Journal compilation (c) 2009 The Agricultural Economics Society.

Suggested Citation

  • Mintewab Bezabih, 2009. "Heterogeneous Risk Preferences, Discount Rates and Land Contract Choice in Ethiopia," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(2), pages 402-418.
  • Handle: RePEc:bla:jageco:v:60:y:2009:i:2:p:402-418

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    References listed on IDEAS

    1. Joseph E. Stiglitz, 1974. "Incentives and Risk Sharing in Sharecropping," Review of Economic Studies, Oxford University Press, vol. 41(2), pages 219-255.
    2. Douglas W. Allen & Dean Lueck, 1993. "Transaction Costs and the Design of Cropshare Contracts," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 78-100, Spring.
    3. Daniel A. Ackerberg & Maristella Botticini, 2002. "Endogenous Matching and the Empirical Determinants of Contract Form," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 564-591, June.
    4. Pender, John L., 1996. "Discount rates and credit markets: Theory and evidence from rural india," Journal of Development Economics, Elsevier, vol. 50(2), pages 257-296, August.
    5. Allen, Douglas W & Lueck, Dean, 1999. "The Role of Risk in Contract Choice," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(3), pages 704-736, October.
    6. Yesuf, Mahmud & Bluffstone, Randy, 2007. "Risk aversion in low income countries: Experimental evidence from Ethiopia," IFPRI discussion papers 715, International Food Policy Research Institute (IFPRI).
    7. World Bank, 2005. "Ethiopia : Well-Being and Poverty in Ethiopia, The Role of Agriculture and Agency," World Bank Other Operational Studies 8707, The World Bank.
    8. Aggarwal, Rimjhim M., 2007. "Role of risk sharing and transaction costs in contract choice: Theory and evidence from groundwater contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 63(3), pages 475-496, July.
    9. Dubois, Pierre, 2002. "Moral hazard, land fertility and sharecropping in a rural area of the Philippines," Journal of Development Economics, Elsevier, vol. 68(1), pages 35-64, June.
    10. Jean-Jacques Laffont & Mohamed Salah Matoussi, 1995. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," Review of Economic Studies, Oxford University Press, vol. 62(3), pages 381-399.
    11. Teklu, Tesfaye & Lemi, Adugna, 2004. "Factors affecting entry and intensity in informal rental land markets in Southern Ethiopian highlands," Agricultural Economics, Blackwell, vol. 30(2), pages 117-128, March.
    12. Bliss, C. J. & Stern, N. H., 1982. "Palanpur: The Economy of an Indian Village," OUP Catalogue, Oxford University Press, number 9780198284192, June.
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    Cited by:

    1. Roland Olbrich & Martin F. Quaas & Andreas Haensler & Stefan Baumgaertner, 2011. "Risk preferences under heterogeneous environmental risk," Working Paper Series in Economics 208, University of L√ľneburg, Institute of Economics.
    2. Gwendoline Promsopha, 2016. "Are free loans of land really free? An exploratory analysis of risk-coping motives in land arrangements in the Northeast of Thailand," Post-Print hal-01401878, HAL.
    3. Gwendoline Promsopha, 2017. "Are free land arrangement really free? An exploration into land arrangements made by rural-urban migrants in the Northeast of Thailand," Working Papers hal-01565843, HAL.

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