Risk Aversion, Behaviors and Well-Being of the Rural Households: Evidence and Political Implications from India
01 August 2022 to 28 February 2023
This project looks at rural residents’ risk preferences, behaviors and well-being in India and attempts to draw political implications on how it affects economic growth. Socio-economic behaviors are usually associated with risk preferences. For example, the impact of risk aversion on agricultural insurance uptake behavior have been examined in the literature. Theory reasons that the risk-aversion incentive of taking up crop insurance is small. However, empirical study such as Fraser (1992), shows that the farmer’s willingness-to-pay for crop insurance is sensitive to risk aversion at certain coverage level, e.g., 50% coverage level. In addition, Ginder et al. (2009) find that due to heterogeneous risk attitudes, farmers’ choice preferences towards crop insurance are likely to be dissimilar depending on insurance’s coverage level and the underwriting risks. Specifically, Moschini and Hennessy (2001) point out that the empirical evidence on the magnitude of farmers’ risk aversion is inconclusive which falls short of providing useful risk management advice. Risk preferences also have substantial effects on health-related activities and health outcomes. For example, Anderson and Mellor (2008) find risk aversion has significant negative impact on health-related behaviors such as smoking, heavy drinking and set belt non-use. Srinivas (2016) investigates the relationship between risk attitude and the occurrence of obesity and find significant positive effect of the risk aversion. Van der Pol and Ruggeri (2008) study the difference of risk attitude within different health domains and find individuals tend to be risk averse with respect to gamble involving risk of immediate death and risk seeking otherwise. Risk aversion affect health insurance purchase, which in turn has influence on health outcomes. There is a number of literature on health insurance and outcomes. For instance, Cheng et al. (2015) investigate the effects of public insurance system on health care expenditure and health outcomes of the rural residents and find that enrolling has significantly improved the elderly’s daily living activities but has not led to better self-assessed general health status. In another related study, Hurd and McGarry (1997) investigate the effect of health insurance on use of health care services in the United States and find positive relationship between health insurance adoption and the use of health care services. Therefore, this project attempts to explain the likely role risk preference plays in rural livelihoods and economic development in India.
Ruojin Zhang received PhD in Economics and MS in Statistics from Washington State University, and was previously a visiting fellow in the Center for Modern Indian Studies (CeMIS) at Georg-August-Universität Göttingen, the Chinese Academy of Social Science.