Utility Functions With Jump Discontinuities: Some Evidence and Implications From Peasant Agriculture

Masson, Robert T.

doi:10.1111/j.1465-7295.1974.tb00422.x

Cited by 22 publications

(8 citation statements)

References 5 publications

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“…The idea that farmers will avoid credit risk is not new, but a formal treatment has been elusive. One of the earliest considerations from Roy (1952; see also Masson, 1974) dealt with safety-first constraints. A farmer facing bankruptcy (i.e.…”

Section: Background and Related Researchmentioning

confidence: 99%

Risk rationing and the demand for agricultural credit: a comparative investigation of Mexico and China

Chiu

Khantachavana²,

Turvey

2014

Agricultural Finance Review

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Purpose -The purpose of this paper is to determine the extent of risk rationing among potential rural borrowers in Mexico and China. Design/methodology/approach -Using primary survey data from 730 farm households in the Shaanxi province of China and from 372 farmers in northeastern Mexico, the authors investigate factors associated with risk rationed, price rationed and quantity rationed farmers. The survey was instrumented to self-identify borrower typologies. In addition the authors created within the survey a discrete-choice credit demand build to determine borrower credit demand elasticities. The analysis applies a linear probability which the authors found to be consistent with multinomial and binary logit models. Findings -The authors find in China the incidence of risk rationing in farmers to be 6.5, 14 percent for quantity rationed and 80 percent for price rationed. In Mexico, 35 percent of the sample is risk rationed, 10 percent quantity rationed and 55 percent price rationed. The results from China support the hypothesis that the financially poor are more likely to be quantity rationed; in Mexico, however, the level of education is found to be important in determining quantity rationed. In both countries, asset wealthy farmers are less likely to be risk rationed; however, income does not appear to have an impact. The paper provides evidence that the elasticity of demand for credit is different among the three credit rationed groups: risk rationed, price rationed and quantity rationed. Risk aversion and prudence are significantly correlated with risk rationing in China, while only risk aversion is significant in Mexico. The results suggest that efforts to enhance credit access must also deal with risk and risk perceptions. Practical implications -Risk rationing is an important concept in the understanding of rural credit markets. The findings that only 6.5 and 35 percent of Chinese and Mexican farmers are in stark contrast to each other. For agricultural economies such as Mexico with a significant number of farmers being risk rationing, more effort should be put into financial education and financial practices, The current issue and full text archive of this journal is available at AFR 74,2 including perhaps the use of risk-contingent credit to remove collateral risk. As property rights in China evolve, and new laws are promulgated to permit borrowing against land use rights, the collateralization issue will become much more important in rural credit markets. Originality/value -This paper is the first to investigate risk rationing in China and Mexico and one of the few research studies empirically investigating risk rationing. A comparative analysis of Mexico and China is enlightening because of the structural differences in the respective agricultural economies. The use of a credit demand build and the enumeration of individual credit demand elasticities is an original contribution to this literature.

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Section: Background and Related Researchmentioning

confidence: 99%

Risk rationing and the demand for agricultural credit: a comparative investigation of Mexico and China

Chiu

Khantachavana²,

Turvey

2014

Agricultural Finance Review

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“…and Dillon (1979), Singh andDay (1975a, 1975b), (1974) and Menezes, Geiss, and Tressler (1980). For evidence on this hypothesis, see Behrman (1968), Kunreuther and Wright (1979), Masson (1974), Moerman (1968), McAlpin (1979), Scandizzo and Dillon (1979), Shahabuddin (1982), Singh andDay (1975a, 1975b,), and Wright and Kunreuther (1975).…”

Section: Risk and Peasant Decision Makingmentioning

confidence: 99%

The Moral or the Rational Peasant? Competing Hypotheses of Collective Action

Feeny¹

1983

J of Asian Stud

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The analytical and empirical foundations of the moral-economy and rationalchoice approaches to peasant behavior are critically examined. Normative decisionmaking models are compared to models that assume household utility maximization. Differences between collective and individual rationality are highlighted. The importance and implications of risk aversion are explored. The effect of the introduction of markets on the economic security of peasant producers is considered, and evidence from Southeast Asian economic history is used to test the implications of both approaches. The results serve to challenge and qualify the arguments put forth by the moral economists on both analytical and empirical grounds.

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“…D. Roy (1952) and R. T. Masson (1974). The key features of the expanded utility function are displayed in Figure 2 and are three-fold: (1) there exists a discontinuity at the equitable wage, (2) utility is a monotonically increasing function of wages as the wage received approaches the equitable wage from below and (3) it is most likely that individual utility initially increases and then, at some point, declines as the wage received increases from above We.…”

Section: Interdependent Utility Functions and The Equitable Wagementioning

confidence: 99%

A Theory of Downward-Rigid Wages and Cyclical Unemployment

Annable

1977

Economic Inquiry

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The theory presented below provides a rationale for downward wage rigidity and consequent cyclical unemployment by modifying the neoclassical assumption of behavioral independence. Such a modification permits an examination of important nonmarket relationships holding between the individual's wage and the wages paid to other people and between perceived equity in wages received and worker productivity—both linkages widely recognized by personnel managers but little explored by economists. The resulting model predicts a pattern of behavior that is consistent with the available evidence on the actual operation of labor markets.

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Utility Functions With Jump Discontinuities: Some Evidence and Implications From Peasant Agriculture

Cited by 22 publications

References 5 publications

Risk rationing and the demand for agricultural credit: a comparative investigation of Mexico and China

Risk rationing and the demand for agricultural credit: a comparative investigation of Mexico and China

The Moral or the Rational Peasant? Competing Hypotheses of Collective Action

A Theory of Downward-Rigid Wages and Cyclical Unemployment

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