Poverty, Risk Aversion, and Path Dependence in Low‐Income Countries: Experimental Evidence from Ethiopia

16 Pages Posted: 28 Apr 2020

See all articles by Mahmud Yesuf

Mahmud Yesuf

Addis Ababa University

Randall Bluffstone

University of Reading

Multiple version iconThere are 2 versions of this paper

Date Written: November 2009

Abstract

In most low‐income countries, rural households depend on mixed rain‐fed agriculture/livestock production, which is very risky. Due to numerous market failures, there are few ways to shift risks to third parties. The literature has focused on what determines the responses of households in such environments. Of special concern are path dependencies in which households experiencing failure are prone to further failure and potential poverty traps. This paper estimates levels and determinants of risk aversion in the highlands of Ethiopia. We find high risk aversion and evidence that constraints have important impacts on risk‐averting behavior with perhaps significant implications for long‐term poverty. The results also suggest the possibility of path dependence and offer insights into links between risk aversion and poverty traps.

Keywords: Ethiopia, experimental economics, loss aversion, path dependence, poverty, risk aversion

Suggested Citation

Yesuf, Mahmud and Bluffstone, Randall, Poverty, Risk Aversion, and Path Dependence in Low‐Income Countries: Experimental Evidence from Ethiopia (November 2009). American Journal of Agricultural Economics, Vol. 91, Issue 4, pp. 1022-1037, 2009, Available at SSRN: https://ssrn.com/abstract=3585852 or http://dx.doi.org/10.1111/j.1467-8276.2009.01307.x

Mahmud Yesuf (Contact Author)

Addis Ababa University

King George VI St
Addis Ababa, 1000
Ethiopia

Randall Bluffstone

University of Reading ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

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