Skip Ribbon Commands
Skip to main content
Home | Support RFF | Join E-mail List | Contact
RFF Logo
Skip navigation links
RESEARCH TOPICS
CENTERS
PUBLICATIONS
NEWS
EVENTS
RESEARCHERS
ABOUT RFF
 

 

 
Join E-mail List
Please provide your e-mail address to receive periodic newsletters and invitations to public events
 
 
Wealth and Time Preference in Rural Ethiopia
Mahmud Yesuf, Randy Bluffstone
RFF Discussion Paper EfD 08-16 | June 2008
RESEARCH TOPICS:
Abstract
This study measured the discount rates of a sample of 262 farm households in the Ethiopian highlands, using a time preference experiment with real payoffs. In general, the median discount ratewas very high—more than double the interest rate on the outstanding debt—and varied systematically with wealth and risk aversion. Although we do not have a good theory for explaining the linkagebetween rates-of-time preferences (RTPs) and risk aversion, our findings warn that these two aspects of household behavior reinforce each other and are easily confused. Our results have importantimplications for understanding households’ behavior. Because the RTPs were so high, what might seem like profitable investments from the outside might not seem so from the farmers’ perspectives.Furthermore, when future returns were uncertain, risk-averse decision makers favored projects with shorter payback periods and were less willing to invest in projects with long-term benefits. Formal capital market development, including lending and mortgage markets—currently non-existent in most of rural Ethiopia—may help reduce RTPs and cause more investments to be acceptable. The results also suggested the need for more research on the linkages between risk aversion and RTPs in low-income countries.
RELATED SUBTOPICS
Africa, Discounting, Risk Analysis
RFF Home | RFF Press: An Imprint of Routledge Terms of Use | Privacy Policy | Copyright Notice
1616 P St. NW, Washington, DC 20036 · 202.328.5000 Feedback | Contact Us