IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Risk Preferences and Environmental Uncertainty: Implications for Crop Diversification Decisions in Ethiopia

Author Info

Listed author(s):
  • Mare Sarr and Mintewab Bezabih

Abstract

To the extent that diversifying income portfolio is used as a strategy for shielding against production risk, both individual risk preferences and weather uncertainty could affect crop diversification decisions. This paper is concerned with empirically assessing the effects of risk preferences and rainfall variability on farm level diversity. Unique panel data from Ethiopia consisting of experimentally generated risk preference measures combined with rainfall data are employed in the analysis. The major contribution of this study is its explicit treatment of individual risk preferences in the decision to diversify, simultaneously controlling for environmental risk in the form of rainfall variability. Covariate shocks from rainfall variability are found to positively contribute to an increased level of diversity with individual risk aversion having a positive but less significant role. We find that rainfall variability in spring has a greater effect than rainfall variability summer—the major rainy season. This finding is in line with similar agronomic-meteorological studies. These results imply that in situ biodiversity conservation could be effective in areas with high rainfall variability. However, reduction in risk aversion, which is associated with poverty reduction, is likely to reduce in situ conservation.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.econrsa.org/node/648
Download Restriction: no

Paper provided by Economic Research Southern Africa in its series Working Papers with number 322.

as
in new window

Length: 31 pages
Date of creation: 2013
Handle: RePEc:rza:wpaper:322
Contact details of provider: Postal:
Newlands on Main, F0301 3rd Floor Mariendahl House, cnr Campground and Main Rds, Claremont, 7700 Cape Town

Phone: 021 671-3980
Fax: +27 21 671 3912
Web page: http://www.econrsa.org/

More information through EDIRC

Keywords: Crop diversity; Experimental risk preferences; Rainfall; Uncertainty;

Other versions of this item:

Find related papers by JEL classification:
  • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
  • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
  • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
  • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. 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.
  2. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
  3. Dercon, Stefan, 2004. "Growth and shocks: evidence from rural Ethiopia," Journal of Development Economics, Elsevier, vol. 74(2), pages 309-329, August.
  4. Stefan Baumgärtner & Martin F. Quaas, 2007. "Agro-biodiversity as natural insurance and the development of financial insurance markets," Working Paper Series in Economics 61, University of Lüneburg, Institute of Economics.
  5. Adesina, Akinwumi A. & Zinnah, Moses M., 1993. "Technology characteristics, farmers' perceptions and adoption decisions: A Tobit model application in Sierra Leone," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 9(4), December.
  6. Joseph R. Blasi & Douglas L. Kruse & Harry M. Markowitz, 2010. "Risk and Lack of Diversification under Employee Ownership and Shared Capitalism," NBER Chapters, in: Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options, pages 105-136 National Bureau of Economic Research, Inc.
  7. Dercon, Stefan, 1996. "Risk, Crop Choice, and Savings: Evidence from Tanzania," Economic Development and Cultural Change, University of Chicago Press, vol. 44(3), pages 485-513, April.
  8. Kurosaki, Takashi & Fafchamps, Marcel, 2002. "Insurance market efficiency and crop choices in Pakistan," Journal of Development Economics, Elsevier, vol. 67(2), pages 419-453, April.
  9. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588.
  10. Teklewold, Hailemariam & Köhlin, Gunnar, 2010. "Risk Preferences as Determinants of Soil Conservation Decisions in Ethiopia," Discussion Papers dp-10-19-efd, Resources For the Future.
  11. Binswanger, Hans P, 1981. "Attitudes toward Risk: Theoretical Implications of an Experiment in Rural India," Economic Journal, Royal Economic Society, vol. 91(364), pages 867-890, December.
  12. Di Falco, Salvatore & Bezabih, Mintewab & Yesuf, Mahmud, 2010. "Seeds for livelihood: Crop biodiversity and food production in Ethiopia," Ecological Economics, Elsevier, vol. 69(8), pages 1695-1702, June.
  13. Salvatore Di Falco & Jean-Paul Chavas, 2006. "Crop genetic diversity, farm productivity and the management of environmental risk in rainfed agriculture," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 33(3), pages 289-314, September.
  14. 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.
  15. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-335, May.
  16. Van Dusen, M. Eric, 2000. "In Situ Conservation Of Crop Genetic Resources In The Mexican Milpa System," Dissertations 11941, University of California, Davis, Department of Agricultural and Resource Economics.
  17. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  18. H. M. G. Herath & J. Brian Hardaker & Jock R. Anderson, 1982. "Choice of Varieties by Sri Lanka Rice Farmers: Comparing Alternative Decision Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(1), pages 87-93.
  19. Tilman, David & Polasky, Stephen & Lehman, Clarence, 2005. "Diversity, productivity and temporal stability in the economies of humans and nature," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 405-426, May.
  20. William Lin & G. W. Dean & C. V. Moore, 1974. "An Empirical Test of Utility vs. Profit Maximization in Agricultural Production," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(3), pages 497-508.
  21. Andrew P. Barkley & Lori L. Porter, 1996. "The Determinants of Wheat Variety Selection in Kansas, 1974 to 1993," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 202-211.
  22. Di Falco, Salvatore & Perrings, Charles, 2005. "Crop biodiversity, risk management and the implications of agricultural assistance," Ecological Economics, Elsevier, vol. 55(4), pages 459-466, December.
  23. Heaton, John & Lucas, Deborah, 2000. "Portfolio Choice in the Presence of Background Risk," Economic Journal, Royal Economic Society, vol. 110(460), pages 1-26, January.
  24. Melinda Smale & Jason Hartell & Paul W. Heisey & Ben Senauer, 1998. "The Contribution of Genetic Resources and Diversity to Wheat Production in the Punjab of Pakistan," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(3), pages 482-493.
  25. Stefan Baumgärtner & Martin F. Quaas, 2010. "Managing increasing environmental risks through agrobiodiversity and agrienvironmental policies," Agricultural Economics, International Association of Agricultural Economists, vol. 41(5), pages 483-496, 09.
  26. Chavas, Jean-Paul, 2004. "Risk Analysis in Theory and Practice," Elsevier Monographs, Elsevier, edition 1, number 9780121706210.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as
in new window


Cited by:

  1. Ayenew, Habtamu Yesigat & Sauer, Johannes & Abate-Kassa, Getachew, 2015. "Expossure To Risk And Risk Management In Smallholder Agriculture," 55th Annual Conference, Giessen, Germany, September 23-25, 2015 209211, German Association of Agricultural Economists (GEWISOLA).
  2. Salazar-Espinoza, César & Jones, Sam & Tarp, Finn, 2015. "Weather shocks and cropland decisions in rural Mozambique," Food Policy, Elsevier, vol. 53(C), pages 9-21.
  3. Ayenew, Habtamu Yesigat & Sauer, Johannes & Abate-Kassa, Getachew, 2016. "Cost of Risk Exposure, Farm Disinvestment and Adaptation to Climate Uncertainties: The Case of Arable Farms in the EU," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235595, Agricultural and Applied Economics Association.
  4. Alem, Yonas & Colmer, Jonathan, 2013. "Optimal Expectations and the Welfare Cost of Climate Variability," Working Papers in Economics 578, University of Gothenburg, Department of Economics.
  5. F. G. Santeramo & B. K. Goodwin & F. Adinolfi & F. Capitanio, 2016. "Farmer Participation, Entry and Exit Decisions in the Italian Crop Insurance Programme," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(3), pages 639-657, 09.
  6. Asfaw, Solomon & Savastano, Sara, 2015. "Topic: Building Resilience to Climate Change Through Social Protection and Climate-Smart Agriculture: Synergies and Trade-offs," 2015 Conference, August 9-14, 2015, Milan, Italy 210963, International Association of Agricultural Economists.
  7. Karl S. Zimmerer & Steven J. Vanek, 2016. "Toward the Integrated Framework Analysis of Linkages among Agrobiodiversity, Livelihood Diversification, Ecological Systems, and Sustainability amid Global Change," Land, MDPI, Open Access Journal, vol. 5(2), pages 1-28, April.
  8. Larson,Donald F. & Savastano,Sara & Murray,Siobhan & Palacios-Lopez,Amparo, 2015. "Are women less productive farmers ? how markets and risk affect fertilizer use, productivity, and measured gender effects in Uganda," Policy Research Working Paper Series 7241, The World Bank.
  9. Michler, Jeffrey D. & Josephson, Anna L., 2017. "To Specialize or Diversify: Agricultural Diversity and Poverty Dynamics in Ethiopia," World Development, Elsevier, vol. 89(C), pages 214-226.
  10. Muraoka, Rie & Matsumoto, Tomoya & Jin, Songqing & Otsuka, Keijiro, 2015. "On the Possibility of a Maize Green Revolution in the Highlands of Kenya: An Assessment of Emerging Intensive Farming Systems," 2015 Conference, August 9-14, 2015, Milan, Italy 212033, International Association of Agricultural Economists.
  11. Josephson, Anna Leigh & Michler, Jeffrey D., 2015. "To Specialize or Diversify: Agricultural Diversity and Poverty Persistence in Ethiopia," 2015 Conference, August 9-14, 2015, Milan, Italy 212459, International Association of Agricultural Economists.
  12. Sauer, Johannes & Finger, Robert, 2014. "Climate Risk Management Strategies in Agriculture – The Case of Flood Risk," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 172679, Agricultural and Applied Economics Association.
  13. Mitter, Hermine & Heumesser, Christine & Schmid, Erwin, 2014. "Modelling robust crop production portfolios to assess agricultural vulnerability to climate change," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182702, European Association of Agricultural Economists.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:rza:wpaper:322. 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: (Charles Tanton)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.