THE IMPORTANCE OF INCOME RISK IN LABOR ALLOCATION DECISIONS

Previous research has found that on-farm income variability helps determine off-farm labor supply. However, unobserved heterogeneity of farms or regions may have biased earlier results. In this study, we use an exogenous increase in Federal crop insurance subsidies as a natural experiment to identify the importance of risk in off-farm labor supply. The subsidy increases induced greater participation in crop insurance programs and thereby reduced farmers' financial risks. By merging county-level crop insurance participation data with farm-level Agricultural Census data from 1992 and 1997 we can compare the off-farm labor decisions of individual farms before and after the subsidy and thereby control for unobserved heterogeneity. Unlike previous studies, we find that on-farm risk does not affect the labor allocation decisions of farm households.


Issue Date:
2003
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/22175
Total Pages:
20
Series Statement:
Selected Paper




 Record created 2017-04-01, last modified 2017-04-26

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