Sabine Liebenehm, Ingmar Schumacher, Eric Strobl, “Rainfall shocks and risk aversion: Evidence from Southeast Asia”, American Journal of Agricultural Economics, https://doi.org/10.1111/ajae.12403

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.

Information about my co-authors:

Sabine Liebenehm (Assistant Professor, University of Saskatchewan) – My research interests cover different fields of agricultural and applied microeconomics, in particular, connecting behavioral and experimental economics to development and agricultural economics. In my recent research projects, I’m studying the temporal stability of risk attitudes. I’m further interested whether changes in risk attitudes lead to changes in economic decision-making. Furthermore, I’m investigating the link between behavioral attitudes and how households share risks with each other in social networks.

Eric Strobl (Professor, University of Bern) – His main research is in the area of applied development economics but he has also published in the areas of international, environmental and labour economics. He is currently working on the economics of natural disasters linking economics with techniques from the natural sciences. Eric has published over 100 papers including in the Review of Economics and Statistics, European Economic Review, Economic Journal, Journal of Development Economics, Journal of Urban Economics and the Canadian Journal of Economics.