On the interaction between risk-taking and risk-sharing under farm household wealth heterogeneity
Bertrand Verheyden and
No 122556, 123rd Seminar, February 23-24, 2012, Dublin, Ireland from European Association of Agricultural Economists
Empirical evidence on developing countries shows on the one hand that rich farm-households are more keen to adopt new technologies and are higher risk takers than poor households. On the other hand, however, they are shown to be less vulnerable to income shocks than poor farmers. This paper provides a rationale for these observations. Risk averse agents, heterogeneously endowed with wealth, non-cooperatively decide on their level of subscription to risk-sharing and on the degree of individual production risk they take. Rich households take more risks and subscribe more to risk-sharing. Although risk-sharing allows all households to cope with idiosyncratic shocks, the risk-taking behavior of rich households increases the covariate component of poor households' income variance through risk-sharing, deterring the participation of the poor. These poor households in turn opt for safer but less productive production plans.
Keywords: International Development; Risk and Uncertainty (search for similar items in EconPapers)
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Working Paper: On the interaction between risk-taking and risk-sharing under farm household wealth heterogeneity (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaa123:122556
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