Department of Economics, UCSC
Risky Income or Lumpy Investments? Evidence on Two Theories of Under-Specialization
- Author(s): Shenoy, Ajay
- et al.
Why do the poor have so many economic activities? According to one theory the poor do not specialize because relying on one income source is risky. I test the theory by measuring the response of Thai rice farmers to conditional volatility in the international rice price. Households expecting a harvest take on 1 extra activity when the volatility rises by 21 percent. I confirm the decrease in specialization costs households foregone revenue. I find no evidence to back a second theory in which households under-specialize because they cannot afford lumpy business investments.