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Why Farmers Sometimes Love Risks: Evidence from India

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  • Annemie Maertens
  • A. V. Chari
  • David R. Just

Abstract

Using a unique data set collected among farmers in India's semiarid tropics, we document the surprising prevalence of risk-taking behavior in the face of realistically framed high-stakes gambles. We hypothesize that this apparently anomalous behavior is due to a combination of credit constraints and nonconvexities in production. In particular, the high-stakes nature of the gambles creates the potential for a farmer to undertake a productive investment that would normally be unaffordable and thereby move to a permanently higher level of income. We show that the degree to which farmers are willing to accept risk in return for this opportunity appears to relate in an intuitive way to their current agricultural production technology as well as the demographic composition of their household.

Suggested Citation

  • Annemie Maertens & A. V. Chari & David R. Just, 2014. "Why Farmers Sometimes Love Risks: Evidence from India," Economic Development and Cultural Change, University of Chicago Press, vol. 62(2), pages 239-274.
    • Handle: RePEc:ucp:ecdecc:doi:10.1086/674028
    DOI: 10.1086/674028
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    2. Thiagu Ranganathan & Sarthak Gaurav & Ashish Singh, 2014. "Anomaly in Decision Making Under Risk:Violation of Stochastic Dominance Among Farmers in Gujarat, India," IEG Working Papers 343, Institute of Economic Growth.

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