IDEAS home Printed from https://ideas.repec.org/p/ags/umedbu/7455.html
   My bibliography  Save this paper

Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments

Author

Listed:
  • Rosenzweig, Mark R.
  • Binswanger, Hans P.

Abstract

Despite the growing evidence that farmers in low-income environments are risk-averse, there has been little empirical evidence on the importance of risk in shaping the actual allocation of production resources among farmers differentiated by wealth. The authors use panel data on investments in rural India to examine how the composition of productive and nonproductive asset holdings varies across farmers with different levels of total wealth and across farmers facing different degrees of weather risk. Income variability is a prominent feature of the experience of rural agents in low-income countries. The authors report evidence, based on measures of rainfall variability, that the agricultural investment portfolio behavior of farmers in such settings reflects risk aversion, due evidently to limitations on consumption-soothing mechanisms such as crop insurance or credit markets. The authors'results suggest that uninsured weather risk is a significant cause of lower efficiency and lower average incomes: a one-standard-deviation decrease in weather risk (measured by the standard deviation of the timing of the rainy season) would raise average profits by up to 35 percent among farmers in the lowest wealth quartile. Moreover, rainfall variability induces a more unequal distribution of average incomes for a given distribution of wealth. Wealthier farmers are willing to absorb significant risk without giving up profits to reduce production risk. Smaller farmers have to invest their limited wealth in ways that reduce their exposure to risk at the cost of lower profit rates. The authors found that at high levels of rainfall variability, differences in rates of profit per unit of agricultural assets were similar across classes of wealth. But over the sample range of rainfall variability, these rates of profit were always higher for the poorer farmers than for the wealthier ones, suggesting that the disadvantages of small farmers in risk diffusion are more than offset by their l
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Rosenzweig, Mark R. & Binswanger, Hans P., 1989. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Bulletins 7455, University of Minnesota, Economic Development Center.
    • Handle: RePEc:ags:umedbu:7455
    as

    Download full text from publisher

    File URL: http://ageconsearch.umn.edu/record/7455/files/edc89-04.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," Review of Economic Studies, Oxford University Press, vol. 25(2), pages 65-86.
    2. Benjamin, D., 1988. "Household Conposition And Labor Demand: A Test Of Rural Labor Market Efficiency," Papers 140, Princeton, Woodrow Wilson School - Public and International Affairs.
    3. Paxton, C.H., 1988. "Household Savings In Thailand: Responses To Income Shocks," Papers 137, Princeton, Woodrow Wilson School - Development Studies.
    4. Amartya K. Sen, 1966. "Peasants and Dualism with or without Surplus Labor," Journal of Political Economy, University of Chicago Press, vol. 74, pages 425-425.
    5. Hans P. Binswanger, 1980. "Attitudes Toward Risk: Experimental Measurement in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 395-407.
    6. Rosenzweig, Mark R. & Pitt, Mark M., 1984. "Agricultural Prices, Food Consumption and the Health and Productivity of Farmers," Bulletins 7471, University of Minnesota, Economic Development Center.
    7. Mark R. Rosenzweig & Kenneth I. Wolpin, 1985. "Specific Experience, Household Structure, and Intergenerational Transfers: Farm Family Land and Labor Arrangements in Developing Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 961-987.
    8. repec:feb:artefa:0008 is not listed on IDEAS
    9. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    10. Bardhan, Pranab K, 1973. "Size, Productivity, and Returns to Scale: An Analysis of Farm-Level Data in Indian Agriculture," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1370-1386, Nov.-Dec..
    11. Lau, Lawrence J., 1976. "A characterization of the normalized restricted profit function," Journal of Economic Theory, Elsevier, vol. 12(1), pages 131-163, February.
    12. Benjamin, Dwayne, 1992. "Household Composition, Labor Markets, and Labor Demand: Testing for Separation in Agricultural Household Models," Econometrica, Econometric Society, vol. 60(2), pages 287-322, March.
    13. repec:fth:prinin:244 is not listed on IDEAS
    14. Edgardo Moscardi & Alain de Janvry, 1977. "Attitudes Toward Risk Among Peasants: An Econometric Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(4), pages 710-716.
    15. Feder, Gershon, 1977. "The impact of uncertainty in a class of objective functions," Journal of Economic Theory, Elsevier, vol. 16(2), pages 504-512, December.
    16. Mazumdar, Dipak, 1975. "The Theory of Share-Cropping with Labour Market Dualism," Economica, London School of Economics and Political Science, vol. 42(167), pages 261-271, August.
    17. Dwayne Benjamin, 1988. "Household Composition and Labor Demand: A Test of Rural Labor," Working Papers 624, Princeton University, Department of Economics, Industrial Relations Section..
    18. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February.
    19. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Farm Management;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:umedbu:7455. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search). General contact details of provider: http://edirc.repec.org/data/dcumnus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.