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Working Paper

Household Responses to Shocks in Rural Ethiopia : Livestock as a Buffer Stock

TRANSITORY INCOME CREDIT MARKETS POULTRY MANURE LIVE ANIMALS ANIMAL PRODUCTS PRODUCTION MULTIPLIERS LIQUIDATION STOCK FARMER INCOME MILK LIVESTOCK RESEARCH PORTFOLIO CHOICE EXCHANGE INCOME FROM LIVESTOCK ELASTICITY OF DEMAND BULLOCKS LIQUIDITY ANIMALS ELASTICITY POLITICAL ECONOMY PORTFOLIO OPTIMIZATION INCENTIVES DISTRIBUTION VARIABLES MARGINAL PRODUCTIVITY DAMAGES INPUTS RETURNS TO SCALE WEALTH RISK AVERSE GRAZING LAND INTERNATIONAL BANK DEVELOPMENT GRAZING LIVESTOCK MARKETING CHOICE SAVINGS ANIMAL DISEASES COSTS MILK PRODUCTION HERDING DEVELOPMENT ECONOMICS MAXIMUM LIKELIHOOD ESTIMATION EXOGENOUS VARIABLES RENT SHEEP CONSTANT RETURNS TO SCALE LIQUIDITY CONSTRAINTS EXPECTED RETURN FAILURES DRAFT POWER LIVESTOCK PRODUCTS LIVESTOCK PRICES UTILITY THEORY MARKETS LIVESTOCK MARKET SELECTION LIVESTOCK LIFE CYCLE HYPOTHESIS INVENTORIES UTILITY DISCOUNTED VALUE TAXES NORMAL GOOD TRANSACTIONS LIVESTOCK MARKETS TRANSACTION CONSUMPTION FOOD SECURITY GOOD LIVESTOCK SECTOR ECONOMETRIC ANALYSIS FUTURE VALUE INCOME SHOCKS RUMINANTS RETURNS CREDIT STOCK MANAGEMENT PURCHASING POWER INCOME VARIABILITY PERMANENT INCOME ANIMAL TRACTION UTILITY FUNCTION PRICE RISK LIVESTOCK PRODUCTIVITY WORKING CAPITAL AGRICULTURE CONSUMERS CATTLE HIGHLANDS CALVES MEASUREMENT ASSETS CASH HOLDINGS TRANSACTION COSTS ANIMAL HUSBANDRY MARKET BENCHMARK SMALL RUMINANTS RURAL MARKETS FOOD BULLS CATTLE OWNERSHIP CATTLE PRICES PRODUCTION FUNCTION HOLDINGS PERMANENT INCOME HYPOTHESIS TRADE CONSUMPTION SMOOTHING HERD SIZE MARGINAL PROPENSITY TO SAVE SLAUGHTERED ANIMALS GOODS THEORY LAND-RICH HOUSEHOLDS LIVESTOCK DURING DROUGHT STOCKS INVESTMENT EXPECTED UTILITY FARM FARMS MEAT TRANSACTIONS COSTS LIVESTOCK INVENTORIES ANIMAL INVESTMENTS RISK MANAGEMENT RISK AVERSION FARMING SYSTEMS GOATS CAPITAL FLIGHT MARGINAL UTILITY CATTLE SALES PRICES POVERTY ALLEVIATION DEVELOPMENT POLICY EXPECTED RETURNS
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World Bank, Washington, DC
Africa | Ethiopia
2015-05-04T20:57:53Z | 2015-05-04T20:57:53Z | 2015-04

This paper uses a stochastic dynamic programming model to characterize the optimal savings-consumption decisions and the role of livestock inventories as a buffer stock in rural Ethiopia. The results show that relatively land-rich households use accumulation and liquidation of cattle and other animal inventories for partial consumption smoothing, while low-income households appear not to do so. The results highlight the need for improvement in livestock markets, which are often affected by high transaction costs and price risk, and for investigation of other approaches to risk management.

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