Consumption Discount Rates, Risk Aversion and Wealth in Low-Income Countries: Evidence from a Field Experiment in Rural Ethiopia. (12th June 2018)

• Record Type: Journal Article
• Authors: Yesuf, Mahmud; Bluffstone, Randall
• Is Part Of: Journal of African economies. Volume 28:Number 1(2019)
• Page Start: 18
• Page End: 38
• Publication Date: 2018-06-12
• Subjects: discounting -- risk aversion -- experimental studies -- interval regression; Africa -- Economic conditions -- 1960- -- Periodicals; Africa -- Economic policy -- Periodicals; 330.96
• DOI: 10.1093/jae/ejy010
• Languages: English
• ISSNs: 0963-8024

Abstract

Abstract: It has been argued that people in low-income countries often have high consumption discount rates (CDRs), which contributes to under-investment in capital, such as education and soil conservation. We use a field experiment to estimate CDRs in rural Ethiopia and find that annual rates range from 43% to 106%. We evaluate whether household wealth affects CDRs and test for synergies with field experiment-derived estimates of risk aversion. We find evidence that respondents who are part of wealthier households have lower CDRs and more risk averse respondents have higher rates.