Rainfall shocks and risk aversion: Evidence from Southeast Asia
Liebenehm, Sabine
Rainfall shocks and risk aversion: Evidence from Southeast Asia - American Journal of Agricultural Economics 2024 - 145-176
We analyze how individual risk aversion changes in response to shocks in an agrarian setting, and the role of changes in yields and prices as two potential channels. To do so we specify a theoretical model that describes temporal alterations in risk aversion. Empirically, we test the model's proposition by combining individual-level panel data with historical rainfall data for rural Thailand and Vietnam. We find that rainfall shocks increase individuals risk aversion, whereby the largest effects are observed among households that are net buyers of food commodities. Regarding potential channels, only prices seem to explain-and even then just to a very small extent-the increase in net buyers' risk aversion. Our findings imply that shocks can increase risk aversion, and, in the absence of functioning credit and insurance markets, may ultimately lead to decisions that perpetuate poverty.
1467-8276
Southeast Asia
Agrarian Setting
Rainfall
Rainfall shocks and risk aversion: Evidence from Southeast Asia - American Journal of Agricultural Economics 2024 - 145-176
We analyze how individual risk aversion changes in response to shocks in an agrarian setting, and the role of changes in yields and prices as two potential channels. To do so we specify a theoretical model that describes temporal alterations in risk aversion. Empirically, we test the model's proposition by combining individual-level panel data with historical rainfall data for rural Thailand and Vietnam. We find that rainfall shocks increase individuals risk aversion, whereby the largest effects are observed among households that are net buyers of food commodities. Regarding potential channels, only prices seem to explain-and even then just to a very small extent-the increase in net buyers' risk aversion. Our findings imply that shocks can increase risk aversion, and, in the absence of functioning credit and insurance markets, may ultimately lead to decisions that perpetuate poverty.
1467-8276
Southeast Asia
Agrarian Setting
Rainfall