Rainfall shocks and risk aversion: Evidence from Southeast Asia

Sabine Liebenehm; Ingmar Schumacher; Eric Strobl

doi:10.1111/ajae.12403

Rainfall shocks and risk aversion: Evidence from Southeast Asia

Sabine Liebenehm^*, Ingmar Schumacher, Eric Strobl

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

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.

Original language	English
Journal	American Journal of Agricultural Economics
Early online date	20 Jun 2023
DOIs	https://doi.org/10.1111/ajae.12403
Publication status	E-pub ahead of print - 20 Jun 2023

Bibliographical note

Funding Information:
We thank Marc Bellemare and three anonymous reviewers for their insightful comments and suggestions. We are also grateful to seminar participants at University of Wisconsin‐Madison, University of Kiel, and Leibniz Institute of Agricultural Development in Transition Economies, and participants at 2018 German Development Economics Conference, Verein für Socialpolitik Annual Conference, and 2022 Sustainability and Development Conference. Finally, we acknowledge the data access to the Thailand Vietnam Socio Economic Panel ( http://www.tvsep.de ), funded by the German Research Foundation (No. 20220831434900116103). All remaining errors are our own.

Publisher Copyright:
© 2023 Agricultural & Applied Economics Association.

Keywords

mediation analysis
rainfall shocks
risk aversion

ASJC Scopus subject areas

Agricultural and Biological Sciences (miscellaneous)
Economics and Econometrics

Access to Document

10.1111/ajae.12403

Cite this

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title = "Rainfall shocks and risk aversion: Evidence from Southeast Asia",

abstract = "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.",

keywords = "mediation analysis, rainfall shocks, risk aversion",

author = "Sabine Liebenehm and Ingmar Schumacher and Eric Strobl",

note = "Funding Information: We thank Marc Bellemare and three anonymous reviewers for their insightful comments and suggestions. We are also grateful to seminar participants at University of Wisconsin‐Madison, University of Kiel, and Leibniz Institute of Agricultural Development in Transition Economies, and participants at 2018 German Development Economics Conference, Verein f{\"u}r Socialpolitik Annual Conference, and 2022 Sustainability and Development Conference. Finally, we acknowledge the data access to the Thailand Vietnam Socio Economic Panel ( http://www.tvsep.de ), funded by the German Research Foundation (No. 20220831434900116103). All remaining errors are our own. Publisher Copyright: {\textcopyright} 2023 Agricultural & Applied Economics Association.",

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AU - Strobl, Eric

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N2 - 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.

AB - 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.

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JO - American Journal of Agricultural Economics

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ER -

Rainfall shocks and risk aversion: Evidence from Southeast Asia

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

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