the role of local nonfarm activities and migration in reducing poverty evidence from ethiopia kenya and uganda by using cross sectional data from ethiopia kenya and uganda this article estimates the determinants of the participation in local nonfarm activities and migration at the individual level and then estimates the determinants of farm and nonfarm income the results indicate that schooling and local language ability increase participation in local nonfarm activities and migration schooling also is found to increase nonfarm income at the household level but not farm income we also find that farm household members from low potential agricultural areas are more likely to participate in local nonfarm activities and migration than those from high potential agricultural areas thus the results suggest that local nonfarm activities and migration offer employment opportunities for workers from low potential agricultural areas indeed the nonfarm activities and migration is likely to provide an important pathway to reduce poverty in low potential agricultural areas in east africa

a multivariate sample selection model estimating cigarette and alcohol demands with zero observations heckman s sample selection model is generalized to the multivariate case and used to estimate demands for cigarettes beer and wine by individuals in the united states the specification allows correlations between the error terms of multiple selection and level equations and nests the popular bivariate sample selection model and two part model empirical results suggest that the proposed model performs better than the restricted specifications differentiated effects of variables on probabilities and levels of consumption also suggest rejection of the tobit system gender differences are present and demographic variables are more important than income in determining consumption of cigarettes beer and wine

reversing disbursement rates to estimate stationary wealth processes for endowments with recursive preferences endowments have been accused of hoarding their wealth however the theoretically ideal spending plan remains unclear and in practice endowments follow a range of rules here we derive and estimate the optimal spending plans of an infinitely lived charity or endowment with an epstein zin weil utility function given general markovian returns to wealth we analyse two special cases first where spending is a power function of last period s wealth and second where the endowment uses payout smoothing via non linear least squares we estimate the optimal spending rate and the elasticity of inter temporal substitution for an endowment with a typical diversified portfolio and for a portfolio of hedge funds in a new approach we use maximum entropy methods to characterize the returns distribution of an endowment whose spending plan conforms with the optimality condition we confirm that the estimated returns distribution is largely consistent with the optimal spending plan

global diversification growth and welfare with imperfectly integrated markets for goods in this article we examine the effect of the imperfect mobility of goods on international risk sharing and through that on the investment in risky projects welfare and growth our main result is that the welfare gain from integration of financial markets is not greatly reduced by the presence of goods market imperfections modeled as a cost of transferring goods from one country to the other we also find that the gain is nonmonotonic with respect to investors risk aversion and the aggregate volatility of output growth the policy implication to be drawn is that financial market integration is a worthwhile goal to pursue even when full goods mobility has not been achieved article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a note on merton s optimum consumption and portfolio rules in a continuous time model in the paper optimum consumption and portfolio rules in a continuous time model by r c merton j econ theory 3 1971 373 413 solutions obtained in cases when marginal utility at zero consumption is finite are not feasible while they do satisfy the hamilton jacobi bellman equations they do not represent appropriate value functions because the boundary behavior near zero wealth is not satisfactorily dealt with in this note we specify the boundary behavior and characterize optimal solutions journal of economic literature classification numbers 022 213

the role of nonfarm income in coping with the effects of drought in southern mozambique to reduce their dependence on subsistence agriculture farm households in rural africa may diversify their income sources by participating in the nonfarm sector in years of drought nonfarm income can also be part of the coping strategies a multivariate sample selection model was used to analyze three years of data from a nationally representative household survey in mozambique the analysis was guided by the following three questions during a drought year 1 do households increase their participation in nonfarm activities 2 are poorer households as likely as others to participate in and benefit from nonfarm activities and 3 which factors are associated with higher nonfarm incomes the results suggest that households are more likely to engage in at least one nonfarm income generating activity during a drought year although poorer households are more likely to engage in nonfarm activities they are less likely to participate in nonfarm activities of high return the results suggest that policies reducing entry barriers e g improved road infrastructure micro credit schemes and livestock promotion programs and increasing education levels can facilitate income diversification thus allowing rural households to better cope with the effects of drought when designing polices care must be taken to avoid exacerbating income inequality by targeting measures toward poorer and female headed households

risk taking global diversification and growth this paper develops a continuous time stochastic model in which international risk sharing can yield substantial welfare gains through its effect on expected consumption growth the mechanism linking global diversification to growth is an attendant world portfolio shift from safe low yield capital to riskier high yield capital the presence of these two types of capital captures the idea that growth depends on the availability of an ever increasing array of specialized hence inherently risky production inputs calibration exercises using consumption and stock market data imply that most countries reap large steady state welfare gains from global financial integration copyright 1994 by american economic association

nonfarm income diversification and household livelihood strategies in rural africa concepts dynamics and policy implications abstract asset activity and income diversification lie at the heart of livelihood strategies in rural africa this paper introduces a special issue on the topic income diversification and livelihoods in rural africa cause and consequence of change we concentrate on core conceptual issues that bedevil the literature on rural income diversification and the policy implications of the empirical evidence presented in this special issue

volatility risk and economic welfare this paper examines the effects of time varying volatility on welfare i construct a tractable endogenous growth model with recursive preferences stochastic volatility and capital adjustment costs the model shows that a rise in volatility can decelerate growth in the absence of any level shocks in contrast to level risk which is always welfare reducing for a risk averse household volatility risk can increase or decrease welfare depending on model parameters when calibrated to u s data the model finds that the welfare cost of volatility risk is largely negligible under plausible model parameterizations

solving consumption and portfolio choice problems the state variable decomposition method we develop a new solution method for a broad class of discrete time dynamic portfolio choice problems the method efficiently approximates conditional expectations of the value function by using i a decomposition of the state variables into a component observable by the investor and a stochastic deviation and ii a taylor expansion of the value function we illustrate the accuracy of the method in handling several realistic features of portfolio choice problems such as intermediate consumption multiple assets multiple state variables portfolio constraints non time separable preferences and nonredundantendogenous state variables we finally use the method to solve a realistic large scale life cycle portfolio choice and consumption problem with predictable expected returns and recursive preferences jel g11 g12

health and schooling investments in africa this paper first outlines an organizing framework for considering how health and schooling affect labor productivity and growth and how household and community factors can in turn affect the demand for these human capital investments both cross country growth models and various aspects of microeconomic studies of individual productivity as related to education and health are discussed the conclusion offers some tentative leads for policy in this area based on existing research and an agenda for future research

agroclimatic shock income inequality and poverty evidence from burkina faso abstract this paper examines the impacts of agroclimatic shock on income inequality and poverty using household farm data from three agroecological zones of burkina faso together with income source decompositions of the gini coefficient and the foster greer thorbecke poverty index before and after a severe drought our findings reveal that because the poor lack acces to off farm income off farm income increases inequality and fails to shield poor households against agroclimatic risks the direction of the empirical relationship between changes in inequality and poverty after the drought depends critically on environmental variables and on apparent constraints on income diversification at different points in the income distribution

rural nonfarm activities and agricultural crop production in nigeria although most rural households are involved in the farm sector the nonfarm sector has grown significantly in recent decades and its role in rural development has become increasingly important this article examines the effect of participation in nonfarm activities on crop expenses of farm households in nigeria the relationship is modeled using a nonseparable agricultural household model that suggests that participating in nonfarm activities can relax the credit constraints facing farm households and reduce risk thereby helping households improve farm production and smooth consumption over time the results show that participation in nonfarm activities by nigerian farmers has a positive and significant effect on crop expenses and in particular on payments for hired labor and inorganic fertilizers separate analysis of the six geopolitical zones in nigeria indicates that it is in the south south and south east zones where nonfarm participation appears to induce more hiring of labor the results support the hypothesis that nonfarm participation helps relax liquidity constraints but suggests how that liquidity is used is zone specific in general the results also indicate that liquidity is used more to pay for inputs into staple production as opposed to cash crops

using evidence of household income diversification to inform study of the rural nonfarm labor market in africa abstract the labor market literature in developing countries has seldom drawn on the studies of rural household income diversification this paper draws on such studies to inform future study of the rural nonfarm labor market in africa the review of evidence provides some surprising departures from traditional images of nonfarm activities of rural households among the most striking is the dominant importance in the majority of case study areas of nonfarm wage labor as compared to self employment of nonfarm sector earnings as compared to farm sector wage earnings and of local nonfarm earnings as compared to migration earnings the most worrying finding was the poor distribution of nonfarm earnings in rural areas despite the importance of these earnings to food security and farm investments this poor distribution implies significant entry barriers and market segmentation it is probable that this will lead over time to an increasingly skewed distribution of land and other assets in rural africa

who should buy long term bonds according to conventional wisdom long term bonds are appropriate for conservative long term investors this paper develops a model of optimal consumption and portfolio choice for infinite lived investors with recursive utility who face stochastic interest rates solves the model using an approximate analytical method and evaluates conventional wisdom as risk aversion increases the myopic component of risky asset demand disappears but the intertemporal hedging component does not conservative investors hold assets to hedge the risk that real interest rates will decline long term inflation indexed bonds are most suitable for this purpose but nominal bonds may also be used if inflation risk is low

the dynamics of livelihood diversification in post famine ethiopia abstract based on data for almost 300 households this paper explores associations among income diversification household perceptions of livelihood risks and changes in consumption outcomes across two points in time in post famine ethiopia four key questions are addressed i to what extent did households emerging from the famine period with relatively higher income and calorie consumption levels also have a more diversified income base ii was higher income diversification in 1989 associated with higher income and consumption levels by 1994 iii which households increased their share of income from non cropping activities most during the inter survey years and iv did household heads perceive a lack of non farm income activities to be an important risk factor in famine vulnerability we find that wealthier households tended to have more diversified income streams those initially more diversified subsequently experienced a relatively greater increase in both income and calorie intake households with a greater concentration of assets were more likely to fall in their relative outcome ranking as were female headed households and initially less diversified households subsequently realized greater gains in income diversification we also find suggestive evidence that personal perceptions of risk factors guided subsequent diversification decisions

an isomorphism between asset pricing models with and without linear habit formation we show an isomorphism between optimal portfolio selection or competitive equilibrium models with utilities incorporating linear habit formation and corresponding models without habit formation the isomorphism can be used to mechanically transform known solutions not involving habit formation to corresponding solutions with habit formation for example the constantinides 1990 and ingersoll 1992 solutions are mechanically obtained from the familiar merton solutions for the additive utility case without recourse to a bellman equation or first order conditions more generally recent solutions to portfolio selection problems with recursive utility and a stochastic investment opportunity set are readily transformed to novel solutions of corresponding problems with utility that combines recursivity with habit formation the methodology also applies in the context of hindy huang kreps 1992 preferences where our isomorphism shows that the solution obtained by hindy and huang 1993 can be mechanically transformed to dybvig s 1995 solution to the optimal consumption investment problem with consumption ratcheting this article presents a general method for solving asset pricing or portfolio selection models involving linear habit formation of the type studied by sundaresan 1989 constantinides 1990 detemple and zapatero 1991 ingersoll 1992 chapman 1998 and others the basic idea we pursue is that linear habit formation can be thought of as a redefinition of what constitutes consumption to include not only the current consumption rate but also a fictitious possibly negative consumption rate derived from past actual consumption by pricing out this fictitious consumption rate correctly the economy with linear habit formation can be mechanically transformed to an equivalent economy without habit formation this analysis simplifies and unifies existing results but also generates novel solutions for example together with the results of schroder and skiadas 1997 1999 our method produces optimal lifetime consumption and portfolio policies with preferences that combine recursive utility with habit formation under a stochastic

the role of risk aversion and intertemporal substitution in dynamic consumption portfolio choice with recursive utility abstract our objective is to understand how risk aversion and elasticity of intertemporal substitution under recursive utility affect dynamic consumption portfolio decisions for a three date model with a stochastic interest rate we obtain an analytic solution for the optimal policies we find that in general consumption and portfolio decisions depend on both risk aversion and elasticity of intertemporal substitution the size of risk aversion relative to unity determines the sign of the intertemporal hedging portfolio while elasticity of intertemporal substitution affects only its magnitude the portfolio weight is independent of elasticity of intertemporal substitution only for the case of a constant investment opportunity set

portfolio choice with non expected utility in continuous time non expected utility preferences which can distinguish intertemporal substitution from attitudes towards risk are extended to continuous time the consumption savings and portfolio problem is solved for constant intertemporal elasticity of substitution and constant relative risk aversion

continuous time methods in finance a review and an assessment i survey and assess the development of continuous time methods in finance during the last 30 years the subperiod 1969 to 1980 saw a dizzying pace of development with seminal ideas in derivatives securities pricing term structure theory asset pricing and optimal consumption and portfolio choices during the period 1981 to 1999 the theory has been extended and modified to better explain empirical regularities in various subfields of finance this latter subperiod has seen significant progress in econometric theory computational and estimation methods to test and implement continuous time models capital market frictions and bargaining issues are being increasingly incorporated in continuous time theory the roots of modern continuous time methods in finance can be traced back to the seminal contributions of merton 1969 1971 1973b in the late 1960s and early 1970s merton 1969 pioneered the use of continuous time modeling in financial economics by formulating the intertemporal consumption and portfolio choice problem of an investor in a stochastic dynamic programming setting merton 1973b also showed how such a framework can be used to develop equilibrium asset pricing implications thereby significantly extending the asset pricing theory to richer dynamic settings and expanding the scope of applications of continuous time methods to study problems in financial economics 1 within a span of about 30 years from the publication of merton s inf luential papers continuous time methods have become an integral part of financial economics indeed in certain core areas in finance such as e g asset pricing derivatives valuation term structure theory and portfolio selection continuoustime methods have proved to be the most attractive way to conduct research and gain economic intuition the continuous time approach in these areas has produced models with a rich variety of testable implications the econometric theory for testing continuous time models has made rapid strides in the last decade and has thus kept pace with the impressive progress on the theoretical front one hopes that the actual empirical investigations and estimation using the new procedures will follow suit soon

the political process and the use of debt financing by state governments empirical evidence offered in this study suggests that decisions by state government officials to effect debt financed spending depend in part on the state s gubernatorial election cycle more specifically the results reveal relative increases in state debt issues in anticipation of elections and furthermore they reveal that such increases are more significant for states characterized by high interparty political competition while theoretical limitations preclude a definitive explanation for these results the evidence is consistent with a view of state political markets where incumbent parties manipulate public policy so as to enhance the probability of success in pending elections this insight is significant in that it suggests a relationship between public policy decisions and election cycles in a context heretofore unexplored

higher fuel and food prices impacts and responses for mozambique rising world prices for fuel and food represent a negative terms of trade shock for mozambique the impacts of these price rises are analyzed using various approaches detailed price data show that the world price increases are being transmitted to domestic prices short run net benefit ratio analysis indicates that urban households and households in the southern region are more vulnerable to food price increases rural households particularly in the north and center often benefit from being in a net seller position longer term analysis using a computable general equilibrium cge model of mozambique indicates that the fuel price shock dominates rising food prices from both macroeconomic and poverty perspectives again negative impacts are larger in urban areas the importance of agricultural production response in general and export response in particular is highlighted policy analysis reveals difficult trade offs between short run mitigation and long run growth improved agricultural productivity has powerful positive impacts but remains difficult to achieve and may not address the immediate impacts of higher prices

public investment and its effects on the burden of the public debt few problems in economics have been so thoroughly debated without being resolved as the question about whether the burden of the public debt is passed on to the future the key issue in the debate is whether taxation and debt are equivalent in their real effects as methods of raising public revenues the question in this form is an old one and both sides of the debate were eloquently discussed by ricardo 2 the purpose of this paper is to present a framework within which the choices facing the many different individuals in the society can be analyzed as is explained below the nature of the economy s adjustment to debt issue cannot be fully understood without first understanding that different individuals will adjust differently to the issuance of additional debt it is unlikely that a single paper could end a debate that is well over two centuries old hence our goal is more modestly to extend the framework of the debate adding some more realistic features to a barro like model illustrates that there are areas of commonality that unite both sides of the debate this study extends the current debate in two ways first it examines the intergenerational transfer of public sector wealth by including the effects of intergenerational bequests of assets in addition to the intergenerational transfer of debt after all when individuals consider the well being of their heirs they must consider the value of the assets that are passed from one generation to the next in addition to the stock of public debt 3 second it

a political theory of government debt and deficits in a neo ricardian framework in the presence of different abilities and therefore different bequests some individuals are bequest constrained even in a neo ricardian world such individuals vote for taxes on future generations through the issuance of bonds thereby increasing their current consumption this produces some crowding out of capital reduces wage rates and increases the interest rate as a consequence even unconstrained individuals are no longer indifferent to the size of government debt the paper derives conditions that are conducive to larger debt and deficits when each of the living generations determines current taxes social security benefits and the national debt by majority rule copyright 1989 by american economic association

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

valuation optimal asset allocation and retirement incentives of pension plans we provide a framework in which we link the valuation and asset allocation policies of defined benefits plans with the lifetime marginal productivity schedule of the worker and the pension plan formula in turn we examine the retirement policies that are implied by the primitives of the model and the value of pension obligations our model provides an explicit valuation formula for a stylized defined benefits plan the optimal asset allocation policies consist of the replicating portfolio of the pension liabilities and the growth optimum portfolio independent of the pension liabilities we show that the worker will retire when the ratio of pension benefits to current wages reaches a critical value which depends on the parameters of the pension plan and the discount rate using numerical techniques we analyze the feedback effect of retirement policies on the valuation of plans and on the asset allocation decisions article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

an intertemporal general equilibrium asset pricing model the case of diffusion information this paper provides sufficient conditions for the equilibrium price system and a vector of exogenously specified state variable processes to form a diffusion process in a pure exchange economy the conditions involve smoothness of agents utility functions and certain nice properties of the aggregate endowment process and the dividend processes of traded assets in place of the dynamic programming a martingale representation technique is utilized to characterize equilibrium portfolio policies this technique is useful even when there does not exist a finite dimensional markov structure in the economy and thus the markovian stochastic dynamic programming is not applicable a gents are shown to hold certain hedging mutual funds and the riskless asset in contrast to earlier results the market portfolio does not have a special role in hedging since the markets are dynamically complete when there exists a finite dimensional markov system in the economy the dimension of the hedging demand identified through the markovian dynamic programming may be much larger than that identified by the martingale method copyright 1987 by the econometric society

dynamic asset allocation in a mean variance framework the aim of this article is to analyze the portfolio strategies that are mean variance efficient when continuous rebalancing is allowed between the current date 0 and the horizon t under very general assumptions when a zero coupon bond of maturity t exists the dynamic efficient frontier is a straight line the slope of which is explicitly characterized every dynamic mean variance efficient strategy can be viewed as buy and hold combinations of two funds the zero coupon bond of maturity t and a continuously rebalanced portfolio an appropriate dynamic strategy defining the latter is explicitly derived for two particular price processes and comparisons of the efficient frontiers static versus dynamic are provided in these cases

two trees with heterogeneous beliefs spillover effect of disagreement in a model where investors disagree about the fundamentals of two stocks the state price density depends on investor disagreements for both stocks especially the larger stock this implies that disagreement among investors in a large firm has a spillover effect on the pricing of other stocks owned by these investors the pricing effects of investor disagreements crucially depend on the average belief biases empirical findings support the novel model prediction of a disagreement spillover effect and help reconcile some mixed evidence in the literature

land consolidation as technical change economic impacts in rural vietnam abstract this paper deepens the economic analysis of the effects of land consolidation reduction of land fragmentation it does this in the context of rural vietnam studying whether land consolidation promotes or hinders the vietnamese government s policy objectives of encouraging agricultural mechanization and stimulating the off farm rural economy the analysis views land consolidation as a form of technical change making it possible to apply the rich insights developed in the economic literature on that subject this treatment reveals that the economic impacts of land consolidation depend partly on its factor bias and partly on the degree to which labor is substitutable in production for other factors at a theoretical level if a technical change is factor neutral it will reduce off farm labor supply and slow rural structural transformation away from agriculture if it is labor augmenting and the elasticity of substitution between factors is low enough the opposite effects are predicted the paper studies these issues empirically for rice production in vietnam focusing on the impact that consolidation of rice land has on rice production machinery use and labor allocation the findings confirm that land consolidation raises both farm productivity and farm income and stimulates increased machinery use it also reduces farm labor supply lowers labor intensity in farming and thereby releases more farm labor to off farm development consistent with government policy objectives based on these findings the paper concludes that land consolidation should be encouraged through development of land ownership rights and the promotion of land rental markets

can gm technologies help the poor the impact of bt cotton in makhathini flats kwazulu natal abstract the results of a two year survey of smallholders in makhathini flats kwazulu natal show that farmers who adopted bt cotton in 1999 2000 benefited according to all the measures used higher yields and lower chemical costs outweighed higher seed costs giving higher gross margins these measures showed negative benefits in 1998 99 which conflicts with continued adoption but stochastic efficiency frontier estimation which takes account of the labor saved showed that adopters averaged 88 efficiency as compared with 66 for the nonadopters in 1999 2000 when late rains lowered yields the gap widened to 74 for adopters and 48 for nonadopters

consumption and portfolio choice under internal multiplicative habit formation this paper explores the optimal consumption and investment behavior of an individual who derives utility from the ratio between his consumption and an endogenous habit we obtain closed form policies under general utility functionals and stochastic investment opportunities by developing a nontrivial linearization to the budget constraint this enables us to explicitly characterize how habit formation affects the marginal propensity to consume and optimal stock bond investments we also show that in a setting that combines habit formation with epstein zin utility consumption no longer grows at unrealistically high rates at high ages and investments in risky assets decrease

disentangling patterns of state debt financing we examine the determinants of change in state government indebtedness from 1961 through 1989 using a pooled time series cross sectional analysis the analysis reveals that debt is primarily a function of economic conditions reflecting both the need to borrow and the capacity of states to repay debt however political factors such as culture partisan competition and electoral cycles also affect state debt we also find very weak evidence that tax and expenditure limitations ironically may increase state indebtedness while constitutional debt limitations have no effect upon slowing the growth of state debt

farm nonfarm linkages in rural sub saharan africa this paper is an accumulation over the past 25 years of a body of detailed work examining the structure of africa s rural nonfarm economy first it systematically reviews empirical evidence on the nature and magnitude of the african rural nonfarm economy it then explores differences across locality and size across countries and over time in an effort to assess likely patterns of growth a subsequent review of key production and consumption parameters allows an estimate of the magnitude of the agricultural growth multipliers in africa the paper concludes with a brief discussion of policies and programs that will be necessary if farm nonfarm growth linkages are to achieve their full potential

an intergenerational transfer model of state debt financing as federal budget deficits and the overall national debt have risen in recent years scholarly attention to the causes and consequences of federal indebtedness has also increased much of that research has focused upon the intergenerational distributive effects of relying upon debt as opposed to tax financing considerably less attention has been directed toward debt financing by the american states despite the fact that such borrowing has increased steadily over the last thirty years though not with the dramatic suddenness that characterizes increases in federal borrowing regens and lauth 1988 this paper examines debt financing at the state level as a policy choice with important intergenerational consequences the analysis assumes that debt financing is the result of political decisions based upon a calculation of the economic interests of different demographic groups within each state elected officials are believed to weigh those interests in the light of their states electoral and legal environments borrowing from an argument by alex cukierman and allan meltzer this paper examines the proposition that a state s long term debt financing is likely to be sizeable in absolute per capita terms and relative to tax revenues when two conditions are met 1 the state has a large elderly population and 2 recent economic growth trends indicate that future generations of state taxpayers may have an easier time paying off currently incurred debt than current taxpayers would have paying off government obligations on a pay as you go basis under these conditions a large portion of a state s electorate is likely to be bequest constrained meaning that they are not willing to donate an inheritance of fully financed government facilities and services to successive generations instead they are willing to borrow from their heirs by forcing future taxpayers to pay the costs of current consumption of governmental benefits

off farm labor market decisions and agricultural shocks among rural households in kenya using household level data from rural kenya this article explores whether and how farm households respond to unfavorable agricultural production environments including any ex post adjustments in off farm labor supply in response to unexpected weather shocks while controlling for a wide range of educational demographic and other locational factors we examine how long term weather conditions and specific rainfall shocks influence a household s decision to engage in and their earnings from the off farm labor market we find that rural households engage in off farm work as a long term strategy to deal with the effects of anticipated weather conditions on their farming operations the analysis does not reveal major short term adjustments in off farm engagement as a result of specific unexpected rainfall shocks these households do however rely on remittance income and petty agricultural wage labor under these circumstances holding other factors constant and conditional on participation households in areas with a more productive local agriculture tend to earn more from off farm work especially in the informal business sector than their counterparts in regions with a less productive agriculture as expected a vibrant local economy in the form of public investment increases the probability of off farm participation

optimal portfolios when volatility can jump abstract we consider an asset allocation problem in a continuous time model with stochastic volatility and jumps in both the asset price and its volatility first we derive the optimal portfolio for an investor with constant relative risk aversion the demand for jump risk includes a hedging component which is not present in models without volatility jumps we further show that the introduction of derivative contracts can have substantial economic value we also analyze the distribution of terminal wealth for an investor who uses the wrong model either by ignoring volatility jumps or by falsely including such jumps or who is subject to estimation risk whenever a model different from the true one is used the terminal wealth distribution exhibits fatter tails and in some cases significant default risk