Measuring Risk Preferences in Rural Ethiopia: Risk Tolerance and Exogenous Income Proxies

37 Pages Posted: 20 Apr 2016

See all articles by Ferdinand M. Vieider

Ferdinand M. Vieider

University of Lyon, CNRS-GATE; German Institute for Economic Research (DIW Berlin); WZB Berlin Social Science Center

Abebe Beyene

EfD Ethiopia

Randall A. Bluffstone

Portland State University - Department of Economics

Sahan Dissanayake

Colby College - Department of Economics

Zenebe Gebreegziabher

Mekelle University - Department of Economics

Peter Martinsson

University of Gothenburg - Department of Economics and Statistics

Alemu Mekonnen

Addis Ababa University - Department of Economics

Date Written: December 1, 2014

Abstract

Risk-aversion has generally been found to decrease in income. This may lead one to expect that poor countries will be more risk-averse than rich countries. Recent comparative findings with students, however, suggest the opposite, giving rise to a risk-income paradox. This paper tests this paradox by measuring the risk preferences of more than 500 household heads spread over the highlands of Ethiopia and finds high degrees of risk tolerance. The paper also finds risk tolerance to increase in income proxies, thus completing the paradox. Using exogenous proxies, the paper concludes that part of the causality must run from income to risk tolerance. The findings suggest that risk preferences cannot be blamed for the failure to adopt new technologies. Alternative explanations are discussed.

Keywords: Global Environment, Science of Climate Change, Climate Change and Environment, Energy and Environment, Climate Change and Health, Energy Demand, Energy and Mining

Suggested Citation

Vieider, Ferdinand M. and Beyene, Abebe and Bluffstone, Randall Ames and Dissanayake, Sahan and Gebreegziabher, Zenebe and Martinsson, Peter and Mekonnen, Alemu, Measuring Risk Preferences in Rural Ethiopia: Risk Tolerance and Exogenous Income Proxies (December 1, 2014). World Bank Policy Research Working Paper No. 7137, Available at SSRN: https://ssrn.com/abstract=2539326

Ferdinand M. Vieider (Contact Author)

University of Lyon, CNRS-GATE ( email )

93, chemin des Mouilles
Ecully, 69130
France

German Institute for Economic Research (DIW Berlin)

Mohrenstraße 58
Berlin, 10117
Germany

WZB Berlin Social Science Center ( email )

Reichpietschufer 50
D-10785 Berlin, 10785
Germany

Abebe Beyene

EfD Ethiopia

Ethiopia

Randall Ames Bluffstone

Portland State University - Department of Economics ( email )

P.O. Box 751
Portland, OR 97207-0751
United States
503-725-3938 (Phone)
503-725-3945 (Fax)

Sahan Dissanayake

Colby College - Department of Economics ( email )

Waterville, ME 04901
United States

Zenebe Gebreegziabher

Mekelle University - Department of Economics ( email )

Adi Haki Campus
Post Box No. 451
Mekelle
Ethiopia

Peter Martinsson

University of Gothenburg - Department of Economics and Statistics ( email )

Box 640
Vasagatan 1, E-building, floor 5 & 6
Göteborg, 40530
Sweden

Alemu Mekonnen

Addis Ababa University - Department of Economics

Addis Ababa
Ethiopia

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