We study household attitude with respect to price risk. Whereas price risk aversion has so far been studied empirically only for single staple commodities, we expand the analytical framework so as to derive an estimable matrix of own- and cross-price risk aversion coefficients. This imposes strong restrictions on the matrix of price risk aversion coefficients, which has a complex relation to the household’s Slutsky substitution matrix. Using a panel of rural Ethiopian households, we test whether the restrictions implied by the theory hold empirically, as well as whether distinct patterns of price risk aversion emerge. We ultimately find strong empirical support for the theory and widespread support for the hypothesis that households are on average risk-averse over own- and cross-price fluctuations.
Under the usual assumption that the landlord is risk-neutral and the tenant is risk-averse, sharecropping is second-best in that it trades off risk sharing and incentives and leads to a constrained Pareto-efficient agreement. Many, however, have reported instances of reverse share tenancy, i.e., sharecropping in which the landlord is considerably poorer than the tenant. This paper shows that reverse share tenancy is impossible under the canonical model of sharecropping but becomes possible if and only if (i) both the landlord and the tenant can be assumed risk-averse; or (ii) there exist significant transactions costs making sharecropping more desirable than either a wage or fixed rent contract.