Measuring risk preferences in rural Ethiopia: risk tolerance and exogenous income proxies

Ferdinand Vieider (), Abebe Beyene, Randall Bluffstone, Sahan Dissanayake, Zenebe Gebreegziabher, Peter Martinsson and Alemu Mekonnen

No 7137, Policy Research Working Paper Series from The World Bank

Abstract: Risk-aversion has generally been found to decrease in income. This may lead one to expect that poor countries will be more risk-averse than rich countries. Recent comparative findings with students, however, suggest the opposite, giving rise to a risk-income paradox. This paper tests this paradox by measuring the risk preferences of more than 500 household heads spread over the highlands of Ethiopia and finds high degrees of risk tolerance. The paper also finds risk tolerance to increase in income proxies, thus completing the paradox. Using exogenous proxies, the paper concludes that part of the causality must run from income to risk tolerance. The findings suggest that risk preferences cannot be blamed for the failure to adopt new technologies. Alternative explanations are discussed.

Keywords: Statistical&Mathematical Sciences; Economic Theory&Research; Labor Policies; Insurance&Risk Mitigation; Hazard Risk Management (search for similar items in EconPapers)
Date: 2014-12-01
New Economics Papers: this item is included in nep-agr and nep-upt
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Citations: View citations in EconPapers (2)

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Working Paper: Measuring risk preferences in rural Ethiopia: Risk tolerance and exogenous income proxies (2014)
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