Economics: Risk and Uncertainty
8 important questions on Economics: Risk and Uncertainty
What are the three elements of conditional profit maximisation?
- Trade-offs with other objectives (leisure, sustainability, risk avoidance, food security)
- Presence of large transaction costs and imperfect or missing markets (for labour, land, food, insurance). In this lecture it will be particular the market for insurance
- Resource constraints (family labour, land, social capital,...) either the availability of resources or access to these resources play an important role in peasant household decisions making.
What are two characteristics of uncertainty?
- Uncertainty is larger in agriculture than in most other economic sectors, due to the influence of weather, pests and diseases and length of production cycle.
- Household responses to risk and uncertainty can be divided into 'mitigation'(= pro-active behaviour) and 'adaptation' (=risk coping). Given certain risks they have been facing you can also cope with it afterwards, and this is called adaptation
What are four types of uncertainty which peasant households face?
- Natural uncertainty: has to do with agriculture itself. Output uncertainty: due to drought, floods, pests and diseases.
- market uncertainty: even when they have access to markets, they are not that certain. The prices they have to pay on markets, because when they grow a crop they price may be much higher then when they harvest.
- institutional uncertainty: it has to do with access to resources whether or not you sure to be able to use it. The uncertainty caused by companies coming to the area, and claming the land.
- Personal uncertainty: illness, funerals, weddings, fire
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How can we cope with natural uncertainty?
How can we control market uncertainty?
What are the four characteristics of institutional (social) uncertainty?
- Access to resources (land tenure)
- Dependence on others (e.g. traders)
- Political environment (civil war, government policies
- Can be influenced through social capital, for example contract with traders that will influence risks
How can personal uncertainty be mitigated?
What is the defenition of risk?
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