Using a unique dataset collected among farmers in India's semi-arid tropics, this paper documents the surprising prevalence of risk-taking behavior in the face of high-stakes gambles. The evidence suggests that this apparently anomalous behavior is due to a combination of credit constraints and non-convexities in production. In particular, the high-stakes nature of the gambles creates the potential for a farmer to undertake a productive investment that would normally be unaffordable and thereby move to a permanently higher level of income. The degree to which farmers are willing to accept risk in return for this opportunity appears to relate in an intuitive way to their current agricultural production technology as well as the demographic composition of their household.
Maertens, Annemie, David R. Just, and Amalavoyal V. Chari, Why Farmers Sometimes Love Risks: Evidence from India. Santa Monica, CA: RAND Corporation, 2011. https://www.rand.org/pubs/working_papers/WR902.html.
Maertens, Annemie, David R. Just, and Amalavoyal V. Chari, Why Farmers Sometimes Love Risks: Evidence from India, Santa Monica, Calif.: RAND Corporation, WR-902, 2011. As of January 13, 2022: https://www.rand.org/pubs/working_papers/WR902.html