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Shocks and Stability of Risk and Time Preferences among Poor Rural Households in Ethiopia

Author

Listed:
  • Tensay Hadush Meles
  • Mehari Hiluf Abay
  • Guush Berhane
  • Alemayehu Seyoum Taffesse

Abstract

This paper examines the effects of shocks on temporal stability of risk and time preferences of rural households within a developing country context characterized by frequent droughts, chronic food insecurity, and low levels of education. Leveraging a three-wave large and diverse household panel data that elicits preferences every two years for more than 6,500 individuals from over 5,600 sample rural households in Ethiopia, we analyze the effects of droughts (self-reported) and rainfall shortfalls on household risk and time preferences. Our findings show that households become more risk-averse and impatient after experiencing drought and rainfall shocks; the change in risk preferences is more notable among households that experience recurrent droughts and multiple covariate shocks during the same period.

Suggested Citation

  • Tensay Hadush Meles & Mehari Hiluf Abay & Guush Berhane & Alemayehu Seyoum Taffesse, 2025. "Shocks and Stability of Risk and Time Preferences among Poor Rural Households in Ethiopia," Journal of African Economies, Centre for the Study of African Economies, vol. 34(2), pages 184-207.
    • Handle: RePEc:oup:jafrec:v:34:y:2025:i:2:p:184-207.
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    File URL: http://hdl.handle.net/10.1093/jae/ejae005
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    More about this item

    Keywords

    shocks; risk preferences; time preferences; preference stability; poor rural households; drought; rainfall shocks; Ethiopia; JEL classification: C23; D12; D90; Q54;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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