Risk, Time and Land Management under Market Imperfections: Applications to Ethiopia

Abstract: This Ph.D. thesis addresses both theoretical and empirical issues pertaining to land management decisions of farm households in developing countries working under an imperfect market and institutional setting (with case studies from Ethiopia). Using techniques in experimental economics, efforts are also made to assign some quantitative measures to the most important parameters (such as risk and time preferences) in the same decision making process. Paper I: A Dynamic Economic Model of Soil Conservation with Imperfect Markets and Institutions In this paper, we develop a dynamic soil conservation model that explicitly incorporates labor, capital and land market imperfections and their interactions to suit the problems of smallholders in many developing countries. We use the model to analyze the impact of these institutional and market imperfections on the optimal levels of labor allocations into cultivation and conservation efforts. Increased transaction cost in factor markets is found to have a direct impact on soil conservation effort by increasing its shadow prices and curtailing its demand. It also has an indirect impact on soil conservation by affecting the shadow price of the soil stock and hence enhancing or curtailing its demand depending on the initial factor endowments of farm households, the relative strength of conservation and cultivation inputs on the soil dynamics, the profit share of cultivation input, and the degree of interaction across the factor markets. The overall impact is thus inconclusive. Various possible scenarios are explored in the model. Paper II: Risk Preferences of Farm Households in Ethiopia This study measures farmers