Risk Aversion, Crop Diversification, and Food Security

Abstract

Does cultivating one crop secure more food than cultivating five crops for smallholder farmers in developing countries? How does farmers risk aversion affect crop diversification and food security choices at the household level? The effect of risk preference on crop diversification has been widely studied. It is unclear, however, how risk aversion, crop diversity, and food security are linked in a causal chain. This article investigates (i) the effect of crop diversification on food security and (ii) the direct effect of risk aversion on food security without a bias from crop diversification. Using the causal chain empirical strategy (Acharya et al., 2016), I estimate the direct effect of risk aversion. In using our unique experimental data collected in rural Ethiopia, our result shows the new evidence: (i) a negative effect of crop diversification on household food security and (ii) a positive direct effect of household head risk aversion on household food security. The contribution of this article consists of two parts. First, it develops the first theoretical framework to show the causal chains of risk aversion, crop diversity, and food security by adapting Sandmo s (1971) model. Second, this article provides the original evidence that crop diversity decreases food security. Acknowledgement : I am very grateful to Marc Bellemare and Terry Hurley for their comments and suggestions on earlier versions of the manuscript.