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Wealth, risk and activity choices: cattle in Western Tanzania

  • Stefan Dercon

Imperfect credit markets force households to use their own savings for investment. Profitable activities often require lumpy investments making it harder for poorer households to enter such activities, resulting in increasing welfare differences. In mixed-farming systems in Tanzania, cattle are a profitable but lumpy investment and a liquid asset for consumption-smoothing. Richer households own substantial cattle herds, while poorer households specialize more in low return, low risk activities A dynamic programming model and numerical simulations are presented to analyze entry into asset accumulation under income risk. The empirical evidence suggests that households with lower endowments find it harder to start up cattle-rearing and returns to their endowments are lower than for cattle owners.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/1996-08.

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Date of creation: 01 May 1996
Date of revision:
Handle: RePEc:oxf:wpaper:wps/1996-08
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