Wealth, risk and activity choices: cattle in Western Tanzania

No 1996-08, CSAE Working Paper Series from Centre for the Study of African Economies, University of Oxford

Abstract: Imperfect credit markets force households to use their own savings for investment. Profitable activities often require lumpy investments making it harder for poorer households to enter such activities, resulting in increasing welfare differences. In mixed-farming systems in Tanzania, cattle are a profitable but lumpy investment and a liquid asset for consumption-smoothing. Richer households own substantial cattle herds, while poorer households specialize more in low return, low risk activities A dynamic programming model and numerical simulations are presented to analyze entry into asset accumulation under income risk. The empirical evidence suggests that households with lower endowments find it harder to start up cattle-rearing and returns to their endowments are lower than for cattle owners.

Keywords: Risk; Borrowing Constraints; Income Diversification; Accumulation (search for similar items in EconPapers)
JEL-codes: I31 I32 J24 O16 O55 Q12 (search for similar items in EconPapers)
Date: 1996
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Citations: View citations in EconPapers (4)

Published in Journal of Development Economics, forthcoming 1998

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Journal Article: Wealth, risk and activity choice: cattle in Western Tanzania (1998)
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