Risky Income or Lumpy Investments? Evidence on Two Theories of Under-Specialization

Ajay Shenoy

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

Abstract: Why do the poor have so many economic activities? According to one theory the poor do not specialize because relying on one income source is risky. I test the theory by measuring the response of Thai rice farmers to conditional volatility in the international rice price. Households expecting a harvest take on 1 extra activity when the volatility rises by 21 percent. I confirm the decrease in specialization costs households foregone revenue. I find no evidence to back a second theory in which households under-specialize because they cannot afford lumpy business investments.

Keywords: Social and Behavioral Sciences; risk; financial market imperfections; specialization; investment; Thailand (search for similar items in EconPapers)
Date: 2014-09-13
New Economics Papers: this item is included in nep-sea
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Citations: View citations in EconPapers (1)

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Journal Article: Risky Income or Lumpy Investments? Evidence on Two Theories of Underspecialization (2018)
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