Can Informal Traditional Institutions Mediate Risk Preferences Among Smallholder Farmers?* - Evidence from Rural Ethiopia
Total Page:16
File Type:pdf, Size:1020Kb
Journal of Agricultural Extension & Community Development, Vol.23 No.2(June 2016), 169-180 농촌지도와 개발 Vol.23.No.2 ISSN 1976-3107(print), 2384-3705(online) http://dx.doi.org/10.12653/jecd.2016.23.2.0169 Can Informal Traditional Institutions Mediate Risk Preferences among Smallholder Farmers?* - Evidence from Rural Ethiopia - Dooseok Janga**⋅Joel Atkinsona⋅Kihong Parkb a Yonsei University/Institute for Poverty Alleviation and International Development (1 Yonseidae-gil, Yonju, Gangwon-do, Korea) b Korea Army Academy at Yeong-cheon (P.O. Box, 135-9, Changha-ri, Gogyeong-myeon, Yeongcheon-si, Gyeongbuk-do, Korea) 비정형의 전통적 기구가 소작농의 위험 성향에 영향을 미치는가? - 에티오피아 농촌 마을을 중심으로 - 장두석a⋅조을 엣킨슨a⋅박기홍b a 연세대학교 빈곤문제연구원 (강원도 원주시 연세대길 1) b 육군3사관학교 (경상북도 영천시 고경면 창하리 사서함 135-9) Abstract This paper assesses the role of informal institutions in determining risk preference among smallholders in Tigray, Ethiopia. We use data from a household survey conducted by the Institute of Poverty Alleviation and International Development (IPAID). We find that households which participate in Debo, an informal labor-sharing institution, or have a friend from whom they can receive help are less likely to be risk-averse. However, participation in Iddir, a traditional form of in- surance, is not significantly associated with risk preference. Hence, the existence of social institutions that provide assis- tance and social connections through reciprocity may be affording security against risk beyond that brought by more monetary forms of insurance. Given the importance of risk attitude in mediating the adoption of improved agricultural production, a policy suggestion is to provide selected aid to households which are less risk-averse agricultural investors. Also, Debo as a labor-sharing institution may serve as a nexus for managing aid and knowledge sharing. Key words: Ethiopia, social capital, risk preference, millennium village 국문초록 본 논문은 에티오피아 티그레이의 농촌 마을의 사회적 기구가 소작농의 농업 투자 등 위험에 대한 성향에 미치는 영향을 연구하였다. 연세대학교 빈곤문제연구소는 2014년과 2015년에 에티오피아 북동부에 위치한 티그레이 지역 의 두 마을에서 관련 설문자료를 수집하였다. 주요 결론으로서, 지역에서 노동력을 분담하는 기구인 Debo (한국의 품앗이)에 참가하거나 조언 및 도움을 구할 수 있는 조력자가 있을 경우 위험에 적극적인 태도를 보여주었다. 반면, 결혼 및 장례식에 대비하여 보험 역할을 하는 Iddir나 사적금에 해당하는 Equub (한국의 계)에 참여하는 가구의 경우 상대적으로 위험에 적극적인 태도를 보여주지는 않았다. 하나의 정책 제안으로서 빈곤국의 농촌 개발 및 지원시 위험에 적극적인 가구를 선택하여 집중적으로 지원하거나, Debo와 같은 마을내 노동협력 기구를 중심 으로 원조⋅교육 계획을 수립할 필요가 있다. 주제어: 에티오피아, 사회적 자산, 위험에 대한 태도, 밀레니엄 마을 * This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government(NRF-2013S1A5B8A01055336). ** Corresponding Author(Dooseok Jang), tel: +82-33-760-2554 fax: +82-33-760-2572 e-mail: [email protected] www.extension.or.kr (학회홈페이지) ⓒ 2016 Society of Agricultural Extension and Community Development www.jaecd.org (저널홈페이지) 170 Dooseok Jang⋅Joel Atkinson⋅Kihong Park 1. Introduction Following Butcher (2007), this study defines informal institutions in Ethiopia as a bundle of rules by which people relate Attitudes toward risk play an important role in the decision to each other and have dealings (or not). They are “social making of poor farmers in developing countries, and therefore practices that are repeated and are sanctioned and maintained by affect agricultural productivity and incomes. From a neo-classical social norms.” In this analysis, four informal institutions are view, asset market failures and risk preferences are sufficient to considered: Iddir, informal insurance against the cost of funerals explain why worthwhile transactions and investments may fail to and weddings; Equub, informal pseudo-banking based on a social occur, and why poverty may persist as a result. In reality, network; and Debo1), an agricultural labor sharing group. A constraints on the actions available to the poor go beyond what fourth type of reciprocal social connection as a human capital a rational model would predict, to include behavioral economic is also considered, the existence of a friend from whom the aspects (Duflo, 2006; Mullainathan & Thaler, 2000). Moreover, household can receive help (for details, see Appendix A). agriculture is inherently risky due to the vagaries of climate and other factors, and it is not surprising that poor farmers are typically risk-averse (Henrich & McElreath, 2002). For instance, 2. Previous Studies poor farmers in Ethiopia, India, Uganda, and Brazil have all been found to be highly risk averse based on experimental approaches Smallholder farmers typically prefer a satisfactory level of (Binswanger, 1980; Dillon & Scandizzo, 1978; Harrison, security over an attempt to maximize incomes. This may also Humphrey, & Verschoor, 2010; Yesuf & Bluffstone, 2009). involve favoring established over new technologies, and growing Due to the importance of risk preference in poverty larger shares of family food requirements rather than increased persistence, there is growing interest in sources of risk mitigation commercialization strategies (Nyikal & Kosura 2005). For for poor smallholder households that could facilitate an increased instance, Tanaka, Camerer, and Nguyen (2010) find evidence that willingness to invest in potentially higher agricultural returns people living in poor villages in Vietnam are generally more risk (Yesuf & Bluffstone, 2009; Nyikal & Kosura, 2005). Various forms averse than those in wealthier villages, and are more likely to shy of formal finance and participation in functioning labor markets away from high risk but high return investments, helping to have a clear role to play, but the access of poor households is explain the persistence of poverty. Rosenzweig and Binswanger generally insufficient. As such, traditional social institutions may (1993) studied the relationship between asset composition and play an important role in risk mitigation. weather in India. During periods of risky weather such as the In this paper we examine the role of informal village monsoon season, farmers decrease their holdings of productive institutions in mediating risk preferences in rural Ethiopia, where assets, reducing the profitability of their portfolios. risk is a major consideration and poverty is widespread and When the borrower and lender are related, the inherent social severe. Rural communities in Ethiopia are often isolated capital can mitigate the limitation of credit accessibility for the geographically and isolated from new ideas and influences. Rural poor (Bastelaer, 2002). Increased credibility between the borrower populations generally lack regular access to mass media. and the lender and peer pressure for repaying facilitate access to Households are on average 10 km away from a dry weather road credit, implying that social capital influences a poor individual’s and 18 km from public transport services. Social capital and risk preference in an overall sense. informal institutions play a key role in protecting rural The influence of various types of social capital on technical households from risk in such an unpredictable environment adoption in Ethiopia is controversial. Deressa, Hassan, Ringler, (Butcher, 2007). Alemu, & Yesuf (2009) address the human network of a 1) Note that the structure of Equub and Debo is similar to that of Gae and Poomaci in Korea. ⓒ 2016 Journal of Agricultural Extension & Community Development Can Informal Traditional Institutions Mediate Risk Preferences among Smallholder Farmers? 171 household, which is represented by whether there is a Alleviation and International Development (IPAID) based at farmer-to-farmer extension service. This was found to be Yonsei University in South Korea. IPAID conducted two surveys positively associated with technical adoption in the Nile basin of of four villages (Hiwot, Koraro, Selam, Simret) in the Hawzen Ethiopia. On the other hand, kinship networks, that is, the district of Tigray Region in northern Ethiopia. Two of the villages number of relative in the village, negatively influence the adoption (Koraro and Selam) were included in the Millennium Village of risk mitigating strategies for climate change in Ethiopia (Falco, Project (MVP)2). 2013). The kinship networks discourage the incentive to adopt The first survey, conducted in 2014, collected information via risk mitigation strategies and encourage the willingness to an enumerator administered questionnaire on 325 randomly free-ride. selected households. The sample represented 6.34 percent of the Wossen, Berger, & Falco (2015) investigate the relationship total number of households. Survey modules focused on between informal social institutions and the adoption of improved agricultural productivity, expenses, household assets, sanitation, farm land management practice in Ethiopia. Membership in local and community attitudes and satisfaction levels. In 2015, two labor sharing arrangements, or Debo, provides a positive villages only, Selam and Simret, were surveyed due to cost relationship with the adoption of improved farm land restraints. This survey was designed to collect additional information management. Membership in local informal saving and credit on risk preferences, informal institution participation, sanitation, organizations, or Ekub, also provides positive influences on and gender issues. All survey questions utilized in this study are adoption because it reduces the limitation of accessibility to a provided through the IPAID homepage3). The sample was financial institution. However, Iddir provides a negative influence collected from 129 households. Of these 92 were matched to the on adoption because it is tied up with a specific daily activity, data