On the interaction between risk-taking and risk-sharing under farm household wealth heterogeneity

Matthieu Delpierre, Bertrand Verheyden and Stéphanie Weynants

No 2011-35, LISER Working Paper Series from Luxembourg Institute of Socio-Economic Research (LISER)

Abstract: 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: Risk-taking; risk-sharing; technology adoption; farm household (search for similar items in EconPapers)
JEL-codes: O12 O13 O17 O33 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-07
New Economics Papers: this item is included in nep-agr and nep-dev
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Working Paper: On the interaction between risk-taking and risk-sharing under farm household wealth heterogeneity (2012)
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