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Risky Income or Lumpy Investments? Evidence on Two Theories of Under-Specialization

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  • Shenoy, Ajay

Abstract

Why do the poor have so many economic activities? According to one theory the poor do not specialize because relying on one income source is risky. I test the theory by measuring the response of Thai rice farmers to conditional volatility in the international rice price. Households expecting a harvest take on 1 extra activity when the volatility rises by 21 percent. I confirm the decrease in specialization costs households foregone revenue. I find no evidence to back a second theory in which households under-specialize because they cannot afford lumpy business investments.

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  • Shenoy, Ajay, 2014. "Risky Income or Lumpy Investments? Evidence on Two Theories of Under-Specialization," Santa Cruz Department of Economics, Working Paper Series qt4649j8k0, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt4649j8k0
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    Cited by:

    1. Chuang, Yating, 2019. "Climate variability, rainfall shocks, and farmers’ income diversification in India," Economics Letters, Elsevier, vol. 174(C), pages 55-61.
    2. Shenoy, Ajay, 2017. "Market failures and misallocation," Journal of Development Economics, Elsevier, vol. 128(C), pages 65-80.

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    Keywords

    Social and Behavioral Sciences; risk; financial market imperfections; specialization; investment; Thailand;
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