Choice of Crops and Employment Uncertainty in the Off-farm Labor Market

Wadood, Syed Naimul and Lamb, Russell L. (2006): Choice of Crops and Employment Uncertainty in the Off-farm Labor Market. Unpublished.

Abstract

Cultivator households in some developing areas use off-farm labor supply as an insurance against crop income shocks, whilst employment is uncertain in this off-farm labor market. This paper hypothesizes that, given limited opportunities for ex post consumption smoothing, employment uncertainty influences risk-averse households’ crop choice decisions-- they would opt for more conservative crop choices in case they expect unfavorable supply opportunities in the labor market. A two-period stochastic dynamic programming model is developed. A panel data set from the ICRISAT survey of the semi-arid tropics of India is examined. Estimation is based on random effects and fixed effects Tobit specifications. Estimation results indicate statistically significant impact of household expectation of harvesting period male unemployment rates on ex ante crop choices. Results also indicate strong influence of household irrigated land share on crop choices.

• Item Type: MPRA Paper
• Language: English
• Keywords: Crop Choice; Off-farm Labor Market; Risk; Panel Data
• Subjects: O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture; Natural Resources; Energy; Environment; Other Primary Products; D - Microeconomics > D1 - Household Behavior and Family Economics > D10 - General

References

Antle, J. M. 1983. Incorporating Risk in Production Analysis. American Journal of Agricultural Economics 65(5), 1099-1106

Arrow, K. J. 1964. The Role of Securities in the Optimal Allocation of Risk-Bearing. Review of Economic Studies 31(2), 91-96. Originally published as Le role des valeurs boursieres pours la repartition la meilleure des risqes. in Econometrie. Centre National de la Recherche Scientifique, Paris, 1953

Bardhan, Pranab and Chistopher Udry. 1999. Development Microeconomics. Oxford University Press, Oxford and New York.

Debreu, G. 1959. Theory of Value: An Axiomatic Analysis of Economic Equilibrium. John Wiley & Sons, Ltd., New York.

Feder, G. 1977. The Impact of Uncertainty in a Class of Objective Functions. Journal of Economic Theory 16(2), 503-512

Honore, Bo E. 1992. Trimmed Lad and Least Squares Estimation of Truncated and Censored Regression Models with Fixed Effects. Econometrica 60(3), 533-565

Intriligator, M. D. 1971. Mathematical Optimization and Economic Theory. Prentice-Hall, Englewood Cliffs, New Jersey.

Just, R. E. and R. D. Pope. 1978. Stochastic Specification of Production Functions and Economic Implications. Journal of Econometrics 7(1), 67-86

Kanwar, S. 1999. Does Risk Matter? The Case of Wage-labour Allocation by Owner-Cultivators. Applied Economics 31(1), 307-317

Kochar, A. 1999. Smoothing Consumption by Smoothing Income: Hours-of-Work Responses to Idiosyncratic Agricultural Shocks in Rural India. Review of Economics and Statistics 81(1), 50-61

Kurosaki, T. 1998. Risk and Household Behavior in Pakistan's Agriculture. I.D.E. Occasional Papers Series No. 34. Institute of Developing Economies, Japan.

Lamb, R. L. 2003. Fertilizer Use, Risk and Off-farm Labor Markets in the Semi-Arid Tropics of India. American Journal of Agricultural Economics 85(2), 359-371

Pope, R. D. and R. Kramer. 1979. Production Uncertainty and Factor Demands for the Competitive Firm. Southern Economic Journal 46(2), 489-501

Roe, Terry and T. Graham-Tomasi. 1986. Yield Risk in a Dynamic Model of the Agricultural Household, in: Singh, I., Squire, L. and J. Strauss (eds.). Agricultural Household Models: Extensions, Applications and Policy. 255-276. The Johns Hopkins University Press, Baltimore.

Rose, E. 1993. Ex ante and Ex post Labor Supply Response to Risk in a Low-Income Area. Ph.D. Dissertation. University of Pennsylvania, Philadelphia.

Rose, E. 2001. Ex ante and Ex post Labor Supply Response to Risk in a Low-income Area. Journal of Development Economics 64(2), 371-388

Rosenzweig, M. R. and H. P. Binswanger. 1993. Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments. Economic Journal 103(416), 56-78 Singh, I., Squire, L. and J. Strauss. 1986. Methodological Issues, in: Singh, I., Squire, L. and J. Strauss (eds.). Agricultural Household Models: Extensions, Applications and Policy. 48-70. The Johns Hopkins University Press, Baltimore.

Singh, R.P., Binswanger, H.P. and N.S. Jodha. 1985. Manual of Instructions for Economic Investigators in ICRISAT’s Village Level Studies (Revised). Mimeo, ICRISAT, India. Walker, T. S. and J. G. Ryan. 1990. Village and Household Economies in India’s Semi-Arid Tropics. The Johns Hopkins University Press, Baltimore.

Wooldridge, J. M. 2002. Econometric Analysis of Cross Section and Panel Data. The MIT Press, Cambridge and London.