Choice of Crops and Employment Uncertainty in the Off-farm Labor Market

Abstract

Cultivator households in some developing areas use off-farm labor supply as an insurance against crop income shocks, whilst employment is uncertain in this off-farm labor market. This paper hypothesizes that, given limited opportunities for ex post consumption smoothing, employment uncertainty influences risk-averse households’ crop choice decisions-- they would opt for more conservative crop choices in case they expect unfavorable supply opportunities in the labor market. A two-period stochastic dynamic programming model is developed. A panel data set from the ICRISAT survey of the semi-arid tropics of India is examined. Estimation is based on random effects and fixed effects Tobit specifications. Estimation results indicate statistically significant impact of household expectation of harvesting period male unemployment rates on ex ante crop choices. Results also indicate strong influence of household irrigated land share on crop choices.Crop Choice; Off-farm Labor Market; Risk; Panel Data