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Risk, Time and Land Management under Market Imperfections: Applications to Ethiopia

by Yesuf, Mahmud, PhD

Abstract (Summary)
This Ph.D. thesis addresses both theoretical and empirical issues pertaining to land management decisions of farm households in developing countries working under an imperfect market and institutional setting (with case studies from Ethiopia). Using techniques in experimental economics, efforts are also made to assign some quantitative measures to the most important parameters (such as risk and time preferences) in the same decision making process. Paper I: A Dynamic Economic Model of Soil Conservation with Imperfect Markets and Institutions In this paper, we develop a dynamic soil conservation model that explicitly incorporates labor, capital and land market imperfections and their interactions to suit the problems of smallholders in many developing countries. We use the model to analyze the impact of these institutional and market imperfections on the optimal levels of labor allocations into cultivation and conservation efforts. Increased transaction cost in factor markets is found to have a direct impact on soil conservation effort by increasing its shadow prices and curtailing its demand. It also has an indirect impact on soil conservation by affecting the shadow price of the soil stock and hence enhancing or curtailing its demand depending on the initial factor endowments of farm households, the relative strength of conservation and cultivation inputs on the soil dynamics, the profit share of cultivation input, and the degree of interaction across the factor markets. The overall impact is thus inconclusive. Various possible scenarios are explored in the model. Paper II: Risk Preferences of Farm Households in Ethiopia This study measures farmersâ?? attitudes towards risk using an experimental approach for a sample of 262 farm households in the Ethiopian highlands. We find more than 50 percent of the households in the severe to extreme risk aversion category, with a constant partial risk aversion coefficient of more than 2.00. With careful construction of the experiment, the natures of absolute and partial risk aversion are examined, and our data supports the presence of Decreasing Absolute Risk Aversion (DARA) and Increasing Partial Risk Aversion (IPRA) behavior. The validity of some of the expected utility theory predictions is tested, and the predictions of risk neutrality for smaller stakes and predictions of similar preferences for gains and losses, which stem from the major tents of the theory (concavity and asset integration), are not supported by our experiment. Paper III: Time Preferences of Farm Households in Ethiopia This study measures
Bibliographical Information:

Advisor:

School:Göteborgs universitet

School Location:Sweden

Source Type:Doctoral Dissertation

Keywords:SOCIAL SCIENCES; Business and economics; Economics; land degradation; market imperfections; transaction costs; soil conservation; fertilizer adoption; risk preference; time preference; experimental studies; Ethiopia

ISBN:91-88514-98-6

Date of Publication:01/01/2004

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