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Abstract

This paper estimates the impact of risk aversion on the farm household's choice of crop mix using the ICRISAT panel. To the extent that production risk is uninsured and households are risk averse, the choice of crop mix will deviate from the expected profit maximizing choice. The paper finds that farmer choices of crop mix are affected by weather risk in two of the ICRISAT villages considered here. Since poorer households are less able to smooth consumption ex post, their ex ante choices are further from the expected profit maximizing crop mix. Empirical results support the model of crop choice. Moreover, poorer households allocate land to a mix of crops with lower risk (and lower average profits), as predicted by the model. This likely contributes to the rise in inequality in the villages over the study period.

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