Risk Aversion, Cooperative Membership, and Path Dependences of Smallholder Farmers in Ethiopia

21 Pages Posted: 5 Jun 2020

See all articles by Alemayehu Molla

Alemayehu Molla

affiliation not provided to SSRN

Joost Beuving

Cultural Anthropology and Development Studies (CAOS)

Ruerd Ruben

Radboud University, Development Studies & Centre for International Development Issues

Date Written: February 2020

Abstract

Smallholder farmers in Sub‐Saharan Africa often mitigate production risks through cooperative membership: institutionalized arrangements where they pool resources and collectively manage production and marketing chains. Cooperative membership has a significant advantage: it cushions detrimental effects of external forces, placing a premium on a risk‐seeking attitude (experimenting and innovating), which can yield greater accumulation. However, cooperatives are self‐selective institutions: relatively better‐endowed farmers, who are usually less risk‐avoidant than poorer ones (a consequence of their broader material bases), tend to be overrepresented. These two realities complicate the causal assessment of the relationships between risk attitudes, farmers’ socioeconomic status, and cooperative membership that is essential to comprehend the role of cooperatives in local capital accumulation. To help resolve this thorny analytical problem, an experimental study was carried out in eastern Ethiopia—a risky production environment where cooperatives feature prominently and relatively affluent farmers exist alongside poorer ones. It unveils the working of specific path dependences: poorer cooperative members are less risk seeking than nonmembers, but at an interval much less than that observed for affluent farmers. For development policies, this suggests that a greater payoff can be expected from investing in farmers’ material bases than from further improving cooperative membership.

Keywords: cooperatives, Ethiopia, experimental economics, social capital, risk aversion

Suggested Citation

Molla, Alemayehu and Beuving, Joost and Ruben, Ruerd, Risk Aversion, Cooperative Membership, and Path Dependences of Smallholder Farmers in Ethiopia (February 2020). Review of Development Economics, Vol. 24, Issue 1, pp. 167-187, 2020, Available at SSRN: https://ssrn.com/abstract=3618507 or http://dx.doi.org/10.1111/rode.12628

Alemayehu Molla

affiliation not provided to SSRN

No Address Available

Joost Beuving (Contact Author)

Cultural Anthropology and Development Studies (CAOS) ( email )

Postbus 9108
Nijmegen, 6500 HK
Netherlands

Ruerd Ruben

Radboud University, Development Studies & Centre for International Development Issues ( email )

Postbus 9108
Nijmegen, 6500 HK
Netherlands

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