Simultaneous Estimation of Risk and Time Preferences Among Small‐Scale Cattle Farmers in West Africa

Abstract

This article reports results from economic field experiments with cattle‐dependent small‐scale farmers in West Africa. We simultaneously estimate both risk and time preferences and examine how demographic and socio‐economic characteristics are correlated with each preference. The empirical basis for our analysis is a panel data survey of 211 households conducted in Mali and Burkina Faso in 2007 and 2011, and economic experiments conducted with the heads of these households in 2011. The theoretical basis for our analysis is a discounted utility model. We apply prospect theory and quasi‐hyperbolic discounting to estimate the present values of future utility streams. We apply a maximum likelihood approach to jointly estimate risk and time preferences, and to investigate the correlations among the preference parameters and observable characteristics. We find that, on average, the West African cattle farmer is generally more risk averse and more patient than similarly‐situated respondents from Asia. Additionally, risk and time preferences are correlated with wealth, education, and religion. We find that constraints in wealth and education are associated with greater risk aversion and impatience. Furthermore, time spent in a Koranic school is positively related to the overweighting of small probabilities, greater risk‐taking behavior, and patience.

Keywords: Cattle farmers, prospect theory, quasi-hyperbolic discounting, risk preference, time preference, West Africa