Research projects - Dr. Sabine Liebenehm
Long-term effects of risk and time preferences on households’ welfare in emerging market economies
Economic theory suggests that risk aversion and time discounting should decline in wealth. As a conclusion, poorer households, especially in developing countries, are considered to be more risk averse and more impatient than wealthier households, which in turn lead the poorer to take management decisions that could perpetuate their lives in poverty. However, our understanding of the complex and dynamic interactions between risk and time preferences, risk management and poverty, especially in different dimensions of well-being, is still quite limited, because of data limitations and highly compartmentalized research methods.
This research project applies a holistic approach, where the dynamic interrelations between risk and time preferences, risk management and the multiple dimensions of poverty will be disentangled in order to derive longer-term prospects for sustainable development of rural households in transition economies.
The emerging market economy of Thailand, which has seen a considerable decline in poverty but remains strongly vulnerable to adverse risks, is a suitable stage to effectively investigate the dynamic interactions between preferences, risk management and poverty.
The research project investigates these interactions by differentiating between two levels of risk management strategies, i.e. (i) risk management at the individual level such as diversifying income sources, and (ii) risk management at the group level such as sharing risks with other households in social networks. Drivers and impacts of risk management strategies at both levels are the objects of investigation. The investigation of drivers of risk management decisions will go beyond standard economic theory and incorporate alternative theories such as prospect theory and quasi-hyperbolic discounting. Among the impacts of risk management strategies, both monetary indicators and non-monetary indicators of well-being will be taken into account.
The empirical foundations for the research are built upon the existing long-term panel data set of approximately 2000 households from rural Thailand over 5 waves from 2007 to 2013 collected within the scope of the DFG-FOR 756 project. In the proposed research the existing data base will be complemented by economic field experiments to elicit risk and time preferences and by collecting information on households’ social networks. With the extended long-term panel database our understanding of the dynamic interlinkages between risk and time preferences, risk management and multidimensional poverty can be significantly improved.
Economics of African Animal Trypanosomosis (AAT) management strategies under risk and time preferences
African animal trypanosomosis (AAT) in cattle and the threat of widespread resistance to trypanocidal drugs, that has been the major input of disease control and prevention, are important production risks to resource-poor cattle farmers in smallholder crop-livestock production systems in the cotton belt of West Africa. Recent studies in that region underline the urgency to improve the understanding of drug resistance development and to find ways of its sustainable containment and prevention. The overall goal of this research is to analyze options that can lead to the sustainability of livestock production in spite of AAT and drug resistance. In this context the decision making behavior of farmers with regard to two factors, namely time preference and attitude towards risk plays an important role. These are two major variables affecting farmers’ input choice of disease control and prevention. Based on the simultaneous elicitation of these parameters by means of economic field experiments among a representative sample of farmers in Mali and Burkina Faso these information are applied to a bio-economic model suitable to compare disease control strategies.
The overall goal of this research is to analyze livestock disease control options that can ensure the sustainability of livestock dependent household systems in West Africa.
High degrees of risk-aversion and myopic behavior lower the willingness to adopt sustainable disease control strategies. Based on the recently collected data from the economic field experiments it is aimed to derive a better understanding of the currently suboptimal situation and to develop potential solutions. A bio-economic model will be developed that can capture the interactions between vector, host and farmers’ treatment decisions, and the resulting consequences on cattle productivity. In this respect a major question is the interaction between the epidemiological aspects of livestock disease management and the behavioral features of human decision making. The research project has two specific objectives, i.e.:
- Analyse the data on risk and time preferences as well as subjective probabilities that have been elicited by economic field experiments from January to February 2011.
- Assess the long-term productivity of AAT disease control strategies including trypanocides in a dynamic modeling framework.
This project is funded by DFG.