why are there still so many jobs the history and future of workplace automation in this essay i begin by identifying the reasons that automation has not wiped out a majority of jobs over the decades and centuries automation does indeed substitute for labor as it is typically intended to do however automation also complements labor raises output in ways that leads to higher demand for labor and interacts with adjustments in labor supply journalists and even expert commentators tend to overstate the extent of machine substitution for human labor and ignore the strong complementarities between automation and labor that increase productivity raise earnings and augment demand for labor changes in technology do alter the types of jobs available and what those jobs pay in the last few decades one noticeable change has been a polarization of the labor market in which wage gains went disproportionately to those at the top and at the bottom of the income and skill distribution not to those in the middle however i also argue this polarization is unlikely to continue very far into future the final section of this paper reflects on how recent and future advances in artificial intelligence and robotics should shape our thinking about the likely trajectory of occupational change and employment growth i argue that the interplay between machine and human comparative advantage allows computers to substitute for workers in performing routine codifiable tasks while amplifying the comparative advantage of workers in supplying problem solving skills adaptability and creativity

the effect of household wealth on fertiliser use in the presence of uncertainty abstractprevious studies of wealth effect on fertiliser use have produced mixed results on the direction of the impact our article looks at this issue from a different perspective by considering the presence of doubts such as about the true content or general effectiveness of fertiliser we show theoretically that there could be different responses between the high wealth and low wealth farmers we analyse also the wealth effect empirically using household panel data from the hebei province of china the results indicate that the direction of wealth effect does indeed change across the different levels of farmers wealth

on corporate borrowing credit spreads and economic activity in emerging economies an empirical investigation abstract we document a considerable increase in foreign financing by the corporate sector in emerging economies emes since the early 2000s mainly in the form of bond issuance and claim that it has opened up an important channel by which external financial factors can drive economic activity in these economies such claim is substantiated by a strong negative relationship between economic activity and an external financial indicator that we construct for several emes using micro level data on spreads of bonds issued by emes corporations in foreign capital markets three salient features characterize such a negative relationship first the financial indicator has considerable predictive power on future economic activity in these economies even after controlling for other potential drivers of business cycles such as movements in sovereign spreads and global financial risk among others second on average an identified adverse shock to the financial indicator generates a large and protracted fall of real output growth in these economies and up to 14 of its forecast error variance is associated to this shock lastly fluctuations in this indicator also respond strongly to shocks in global financial risk emanating from world capital markets thereby implying that changes in corporate spreads also serve as a powerful propagating mechanism of the effect of changes in global investors risk appetite in emerging markets

credit market constraints consumption smoothing and the accumulation of durable production assets in low income countries investments in bullocks in india in this paper we formulate and estimate a finite horizon structural dynamic model of agricultural investment behavior that incorporates the major features of low income agricultural environments income uncertainty constraints on borrowing and rental markets and the use of investment assets to generate income and smooth consumption the model is fit to longitudinal indian household data on farm profits bullock stocks and pump sets the estimated structural parameters are used to assess the effects on the life cycle accumulation of bullocks agricultural profits and welfare associated with complete markets and bullock liquidity and with second best policies that provide assured sources of income to farmers and weather insurance

ex ante and ex post labor supply response to risk in a low income area abstract this paper tests for ex ante and ex post labor supply responses to weather risk for rural indian farm households the analysis uses panel data on 2115 households spanning 13 states in rural india merged with a 22 year series of district level rainfall data ex ante households facing riskier distributions of rainfall are more likely to participate in the labor market ex post unexpectedly bad weather and low rainfall increase labor force participation

nutrition information and household behavior experimental evidence from malawi incorrect knowledge of the health production function may lead to inefficient household choices and thereby to the production of suboptimal levels of health this paper studies the effects of a randomized intervention in rural malawi that over a six month period provided mothers of young infants with information on child nutrition without supplying any monetary or in kind resources a simple model first investigates theoretically how nutrition and other household choices including labor supply may change in response to the improved nutrition knowledge observed in the intervention areas we then show empirically that the intervention improved child nutrition household food consumption and consequently health we find evidence that labor supply increased which might have contributed to partially fund the increase in food consumption this paper is the first to study whether non health choices particularly parental labor supply might be affected by parents knowledge of the child health production function

incorporating risk in production analysis risk is the farmer s perennial problem unfortunately agricultural economists have made little progress in analyzing or measuring production risk in ways that provide useful information for farm management therefore it is fair to say that the social returns to existing research on production risk are probably low it is from this perspective that i will discuss incorporating risk in production analysis my purpose is not to survey the literature or to catalog all the ways risk concepts have been incorporated in production models rather i intend to evaluate critically some of the basic concepts and approaches in the literature and to indicate the directions i believe research must take to arrive at a paradigm for incorporating risk in production analysis that could yield higher social returns in my view the conventional conceptual framework used for risk analysis has not led agricultural economists to ask the most important questions about the effects risk has on agricultural decision making the extension of the static neoclassical production model to incorporate price and production uncertainty has led agricultural economists to rationalize observed behavior in terms of the arrow pratt risk aversion concept this approach has led in turn to qualitative comparative static theorems which are appealing to theorists but have little relation to the decision problems farmers face to increase the relevance of their models and methods i believe agricultural economists need to understand specifically how risk affects agricultural production this in turn will suggest how risk affects agricultural decision making and why farmers are or should be concerned with it my analysis of these issues leads me to discount the hypothesis that risk matters primarily because of the psychic disutility it causes rather i hypothesize that risk matters primarily because production is a dynamic phenomenon and therefore production and price uncertainty affect expected productivity and expected income i hypothesize that these firstorder effects are why farmers are and should be concerned with risk the analysis of dynamic uncertain models shows that farmers optimal decisions are affected by risk whether they are risk neutral or risk averse this suggests that dynamic risk neutral models may be more useful than conventional static risk averse models for understanding the role production risk plays in farm management

capital is back wealth income ratios in rich countries 1700 2010 how do aggregate wealth to income ratios evolve in the long run and why we address this question using 1970 2010 national balance sheets recently compiled in the top eight developed economies for the united states united kingdom germany and france we are able to extend our analysis as far back as 1700 we find in every country a gradual rise of wealth income ratios in recent decades from about 200 300 in 1970 to 400 600 in 2010 in effect today s ratios appear to be returning to the high values observed in europe in the eighteenth and nineteenth centuries 600 700 this can be explained by a long run asset price recovery itself driven by changes in capital policies since the world wars and by the slowdown of productivity and population growth in line with the s g harrod domar solow formula that is for a given net saving

adoption of agricultural innovations in developing countries a survey this paper reviews various studies which have provided a description and possible explanation to patterns of innovation adoption in the agricultural sector the survey points out that the tendency of many studies to consider innovation adoption in dichotomous terms adoption nonadoption may not be appropriate in many cases where the actual decisions are defined over a more continuous range more attention needs to be given to the socio cultural and institutional environment in area studies so that their interrelation with economic factors affecting adoption can be inferred the presence of several interrelated innovations is another aspect that needs to be considered more carefully in future research since a number of simultaneous decisions may be involved furthermore the possibility of regular sequential patterns in adopting components of a new technological package should be specifically addressed in future studies finally the impact of differential adoption rates on land holding distribution merits attention in future research

agricultural technology choice and transport this paper addresses an old and recurring theme in development economics the slow adoption of new technologies by farmers in many developing countries the paper explores a somewhat novel link to explain this puzzle the link between market access and the incentives to adopt a new technology when there are non convexities the paper develops a theoretical model to guide the empirical analysis which uses spatially disaggregated agricultural production data from spatial production allocation model and living standards measurement study survey data for nigeria the model is used to estimate the impact of transport costs on crop production the adoption of modern technologies and the differential impact on returns of modern versus traditional farmers to overcome the limitation of data availability on travel costs for much of africa road survey data are combined with geographic information road network data to generate the most thorough and accurate road network available with these data and the highway development management model minimum travel costs from each location to the market are computed consistent with the theory analysis finds that transportation costs are critical in determining technology choices with a greater responsiveness among farmers who adopt modern technologies and at times a perverse negative response to lower transport costs among those who employ more traditional techniques in sum the paper presents compelling evidence that the constraints to the adoption of modern technologies and access to markets are interconnected and so should be targeted jointly

technical change sectoral dislocation and barriers to labor mobility factors behind the great recession abstract the global financial and economic crisis which began in late 2007 great recession is the worst international crisis since 1929 great depression and still affects many countries this paper attempts to determine if the theory of extended crises presented by delli gatti et al 2012 is consistent with empirical evidence the analysis is carried out using two approaches the first part of the paper is purely descriptive and is dedicated to a comparison between structural differences and different patterns of development in six countries france germany italy spain uk and us using data on the major world economies klems and stan since 1970 we show that the fundamentals behind the extended crisis theory apply to these economies we focus particularly on italy germany and the us among large economies italy is one of the most affected and still not recovering even though the italian financial sector appeared to have been less exposed to the 2008 shock than other countries the crisis in italy could be directly connected to the failure of the italian economy to move to an economic system based on more skill intensive production in particular in the service sector as in the us the us financial sector was extremely exposed to the 2008 sub prime crisis but us economy recovered much faster than in many european countries germany is the leading european economy generally considered in european public debate as the example to be followed in the last part of the paper the analysis is broadened involving more countries in a panel analysis approach different specifications of panel probit logit models are presented in a first attempt to investigate the roles of both structural features and financial shock in explaining the extent of the crisis in different countries

consumption and income seasonality in thailand many households in developing countries rely on seasonal agriculture for their incomes this paper investigates whether household consumption expenditure tracks income across seasons using data from thailand i contrast the seasonal consumption patterns of households with different seasonal income patterns and estimate the responsiveness of seasonal consumption to seasonal income i find little evidence that consumption tracks income over the course of the year the findings suggest that observed seasonal consumption patterns are the result of seasonal variations in preferences or prices common to all households rather than an inability of households to use savings behavior to smooth consumption

does migration raise agricultural investment an empirical analysis for rural mexico the effect of remittances on capital accumulation remains a contested topic this paper uses a panel data set from rural mexico to investigate the impact of remittances on agriculture and livestock investments after controlling for the endogeneity of migration through an instrumental variable estimation our empirical results show that international migration has a significantly positive effect on the accumulated agricultural assets but not on livestock capital this suggests that households use the capital obtained from international migration only to overcome liquidity constraints for subsistence production whereas migration itself seems to be the superior investment option compared to other productive activities such as livestock husbandry

income smoothing and consumption smoothing one way that risk averse households protect consumption levels is to borrow and use insurance mechanisms another way common in low income economies is to diversify economic activities and make conservative production and employment choices households thus tend toward limiting exposure only to shocks that can be handled with available credit and insurance typically both types of mechanisms are studied independently but much more can be learned by studying them together first we obtain a more complete picture of risks costs and insurance possibilities second it opens the way to considering biases in standard tests of credit and insurance

fertilizer use risk and off farm labor markets in the semi arid tropics of india a two period model is developed in which a risk averse farmer uses off farm labor to smooth consumption leading to greater use of fertilizer fertilizer demand is shown to increase with the depth of the off farm labor market controlling for exogenous weather risk farmers use more fertilizer the lower the unemployment rate and the higher the share of nonagricultural work in total off farm labor the results suggest that off farm labor markets and own farm production may be complementary in risky production environments so that policies which promote the depth of the off farm labor market in low income areas may also bolster farm productivity copyright 2003 oxford university press

search liquidity and the dynamics of house prices and construction the dynamics of house prices sales construction and population growth in response to city specific income shocks are characterized for 106 us cities a dynamic model of search in the housing market in which construction the entry of buyers house prices and sales are determined in equilibrium is then developed the theory generates dynamics qualitatively consistent with the observations and a version calibrated to match key features of the us housing market offers a substantial quantitative improvement over models without search in particular variation in the time it takes to sell induces transaction prices to exhibit serially correlated growth jel d83 r21 r23 r31 we explore the consequences of time consuming search and matching for the dynamics of house prices sales and construction at the city level first we char acterize the impact of city specific income shocks on the short run dynamics of average house prices home sales construction and population growth for a panel of us cities we then develop a model in which the entry of new buyers and the construction of new houses in response to such shocks are endogenously determined our theory generates serial correlation in the growth rates of house prices and construction even if income is strictly mean reverting following shocks 1 when calibrated to data on us cities our model accounts for over 80 percent of the variance of house price movements driven by city specific income shocks and nearly half of the observed autocorrelation of house price growth in our empirical analysis we estimate a structural panel vector autoregressive var model using city level observations on the variables listed above we focus

wealth weather risk and the composition and profitability of agricultural investments despite the growing evidence that farmers in low income environments are risk averse there has been little empirical evidence on the importance of risk in shaping the actual allocation of production resources among farmers differentiated by wealth the authors use panel data on investments in rural india to examine how the composition of productive and nonproductive asset holdings varies across farmers with different levels of total wealth and across farmers facing different degrees of weather risk income variability is a prominent feature of the experience of rural agents in low income countries the authors report evidence based on measures of rainfall variability that the agricultural investment portfolio behavior of farmers in such settings reflects risk aversion due evidently to limitations on consumption soothing mechanisms such as crop insurance or credit markets the authors results suggest that uninsured weather risk is a significant cause of lower efficiency and lower average incomes a one standard deviation decrease in weather risk measured by the standard deviation of the timing of the rainy season would raise average profits by up to 35 percent among farmers in the lowest wealth quartile moreover rainfall variability induces a more unequal distribution of average incomes for a given distribution of wealth wealthier farmers are willing to absorb significant risk without giving up profits to reduce production risk smaller farmers have to invest their limited wealth in ways that reduce their exposure to risk at the cost of lower profit rates the authors found that at high levels of rainfall variability differences in rates of profit per unit of agricultural assets were similar across classes of wealth but over the sample range of rainfall variability these rates of profit were always higher for the poorer farmers than for the wealthier ones suggesting that the disadvantages of small farmers in risk diffusion are more than offset by their labor cost advantage

is modern technology responsible for jobless recoveries since the early 1990s recoveries from recessions in the us have been plagued by weak employment growth we investigate whether a similar problem afflicts other developed economies and whether technology is a culprit we study recoveries from 71 recessions in 28 industries and 17 countries from 1970 2011 we find that though gdp recovered more slowly after recent recessions employment did not industries that used more routine tasks and those more exposed to robotization did not recently experience slower employment recoveries finally middle skill employment did not recover more slowly after recent recessions and this pattern was no different in routine intensive industries

using shadow wages to estimate labor supply of agricultural households with few exceptions most studies of the labor demand and supply decisions of agricultural households in developing countries have relied on the empirical advantages of separability given the questionable nature of some of the assumptions sufficient for separability i apply a recent methodology that accounts for the simultaneity between the production and consumption decisions of a farm household using data from rural india direct estimates of the marginal productivities shadow wages of family male and female labor are derived from a cobb douglas agricultural production function the estimated shadow wages and income are then used as regressors in a structural model of labor supply

robotization and labour dislocation in the manufacturing sectors of oecd countries a panel var approach robots are the most important innovation which has affected the production process in the last three decades thanks to the latest advances in technology they have been able to perform an ever inc

parental altruism and the value of avoiding acute illness are kids worth more than parents abstract a model describing parents preferences to relieve their own and their children s acute illnesses is estimated using stated preference data estimated marginal rates of substitution mrs between child and parent illness are about two indicating that parents value children s illness attributes twice as highly as their own the mrs is larger for younger children falls toward unity as the child approaches adulthood and appears to reflect parental altruism rather than parent child differences in initial health or illness costs intra family allocations may compensate for chronic health impairments parents willingness to pay to avoid own or child illness increases with income declines with fertility increases at a decreasing rate with duration and number of symptoms and depends on perceived discomfort and activity restrictions current methods of assessing morbidity benefits of environmental regulations may understate substantially the value of children s health particularly in african american families

how does risk management influence production decisions evidence from a field experiment weather is a key source of income risk especially in emerging market economies this paper uses a randomized controlled trial involving indian farmers to study how an innovative rainfall insurance product affects production decisions the authors find that insurance provision induces farmers to invest more in higher return but rainfall sensitive cash crops particularly among educated farmers this shift in behavior occurs ex ante when realized monsoon rainfall is still uncertain the results suggest that financial innovation can mitigate the real effects of uninsured production risk

the race between man and machine implications of technology for growth factor shares and employment we examine the concerns that new technologies will render labor redundant in a framework in which tasks previously performed by labor can be automated and new versions of existing tasks in which labor has a comparative advantage can be created in a static version where capital is fixed and technology is exogenous automation reduces employment and the labor share and may even reduce wages while the creation of new tasks has the opposite effects our full model endogenizes capital accumulation and the direction of research towards automation and the creation of new tasks if the long run rental rate of capital relative to the wage is sufficiently low the long run equilibrium involves automation of all tasks otherwise there exists a stable balanced growth path in which the two types of innovations go hand in hand stability is a consequence of the fact that automation reduces the cost of producing using labor and thus discourages further automation and encourages the creation of new tasks in an extension with heterogeneous skills we show that inequality increases during transitions driven both by faster automation and introduction of new tasks and characterize the conditions under which inequality is increasing or stable in the long run

productivity credit risk and the demand for weather index insurance in smallholder agriculture in ethiopia the article explores the relationship between fertilizer use and the demand for weather index insurance wii among smallholder farmers in ethiopia we examine whether fertilizer use is profitable under current smallholder production conditions whether risk related factors affect fertilizer use and we estimate the returns to inputs in the agricultural production function in the absence of insurance we then study how these primitives of agricultural production functions relate to insurance demand the study compares a survey based estimate of willingness to pay with actual uptake for the weather insurance finding the stated and actual demand to be almost completely uncorrelated while those with high marginal returns to inputs say they would purchase insurance only those with low marginal returns actually do consistent with the stated purpose of the product as input insurance insurance demand proves to be highly responsive to the existence and amount of randomly allocated insurance vouchers jel classifications c83 g22 q12

the measurement of individual utility and social welfare it has been suggested by a number of economists that decisions about how to allocate scarce health care resources should be informed by the cost per quality adjusted life years qalys of the different alternatives one of the criticisms of the qaly approach is that it is based on the measurement of individual utility yet the values elicited are used to inform social choice in this respect it is argued that the qaly approach fails to take account of distributional issues that are known to be important in the context of health care this paper addresses this issue and presents an approach grounded in microeconomic theory that is flexible enough to deal with a wide range of efficiency equity trade offs while making the nature of the trade off transparent in addition it is an approach that is relatively simple to investigate empirically and the results of a preliminary study are presented as illustration of this

heterogeneous returns to chemical fertilizer at the intensive margins insights from nepal increased fertilizer use is considered important for agricultural development in low income countries promoting increased use of chemical fertilizer by lowering its price may be ineffective if demand is price inelastic in theory the price elasticity of demand depends on the returns to its use but the evidence is scarce furthermore while returns are often estimated for small changes in chemical fertilizer use returns to larger changes in its use intensive margins are less understood through the inter zonal comparisons in nepal we provide indicative evidence that greater returns to chemical fertilizer are associated with greater price elasticities of demand moreover the evidence suggests that returns at the intensive margins rather than returns to small changes may largely account for inter zonal differences in returns to chemical fertilizer within nepal the results suggest that better understanding the returns at the intensive margins is critical for effective agricultural inputs policies in developing countries

nonstructural risk attitude estimation this paper presents an econometric approach to risk attitude estimation that does not require joint estimation of the structure of the firm s technology and input decision rules the nonstructural approach replaces optimal input choice with the assumption that farmers optimally manage their portfolios of productive activities by thus shifting the focus from the detailed production decisions of the farm manager to the net returns of the whole farm operation the modeling problem is simplified the nonstructural approach is used to estimate risk attitudes in three indian villages the results are compared to previous experimental and econometric estimates from the same villages

altruism and environmental risks to health of parents and their children abstract this paper tests an equilibrium condition from a model that incorporates 1 altruism of parents toward their young children and 2 household production of latent health risks the model demonstrates that an altruistic parent s marginal rate of substitution between an environmental health risk to herself and to her child is equal to the ratio of marginal risk reduction costs econometric estimates support this prediction based on data from a stated preference survey involving 488 parents of children aged 3 12 years this outcome implies that parents reallocate family resources to at least partly offset the effectiveness of public programs that aim to reduce their children s environmental risks

the complex dynamics of smallholder technology adoption the case of sri in madagascar this article explores the dynamics of smallholder technology adoption with particular reference to a high yielding low external input rice production method in madagascar we present a simple model of technology adoption by farm households in an environment of incomplete financial and land markets we then use a probit model and symmetrically censored least squares estimation of a dynamic tobit model to analyze the decisions to adopt expand and disadopt the method we find that seasonal liquidity constraints discourage adoption by poorer farmers learning effects both from extension agents and from other farmers exert significant influence over adoption decisions

shocks to bank capital evidence from uk banks at home and away this article assesses how shocks to bank capital may influence a bank s portfolio behaviour using novel evidence from a uk bank panel data set from a period that predates the recent financial crisis focusing on the behaviour of bank loans we extract the dynamic response of a bank to innovations in its capital and in its regulatory capital buffer we find that innovations in a bank s capital in this precrisis sample period were coupled with a loan response that lasted up to 3 years the international presence of uk banks allows us to identify a specific driver of capital shocks in our data independent of bank lending to uk residents specifically we use write offs on loans to nonresidents to instrument bank capital s impact on uk resident lending a fall in capital brought about a significant drop in lending in particular to private nonfinancial corporations pnfc in contrast household lending increased when capital fell which may indicate that in this precrisis period banks substituted into l

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

health related externalities evidence from a choice experiment health related external benefits are of potentially large importance for public policy this paper investigates health related external benefits using a stated preference discrete choice experiment framed in a health care context and including choice scenarios defined by six attributes related to a recipient and the recipient s condition communicability severity medical necessity relationship to respondent location and amount of contribution requested subjects also completed a set of own treatment scenarios and a values orientation instrument we find evidence of substantial health related external benefits that vary as expected with the scenario attributes and subjects value orientations the results are consistent with a number of hypotheses offered by the general theoretical analysis of health related externalities and the analysis of externalities specific to health care

consumption smoothing migration and marriage evidence from rural india a significant proportion of migration in low income countries particularly in rural areas is composed of moves by women for the purpose of marriage we seek to explain these mobility patterns by examining marital arrangements among indian households in particular we hypothesize that the marriage of daughters to locationally distant dispersed yet kinship related households is a manifestation of implicit interhousehold contractual arrangements aimed at mitigating income risks and facilitating consumption smoothing in an environment characterized by information costs and spatially covariant risks analysis of longitudinal south indian village data lends support to the hypothesis marriage cum migration contributes significantly to a reduction in the variability of household food consumption farm households afflicted with more variable profits tend to engage in longer distance marriage cum migration the hypothesized and observed marriage cum migration patterns are in dissonance with standard models of marriage or migration that are concerned primarily with search costs and static income gains

mobility constraints productivity trends and extended crises abstract in this paper we propose an interpretation of the current global financial crisis which emphasizes sectoral dislocation following localized technical change in the presence of barriers to labor mobility this tale is reminiscent of a similar tale concerning the great depression in the 30s technical change was localized in agriculture where income fell because rising productivity could not be offset by a shrinking labor force due to the costs of moving out of agriculture for unemployed workers inelastic demand for agricultural output meant that as output increased income declined as individual incomes fell below the level necessary to finance the transition to manufacturing excess labor became trapped in agriculture reducing wages and exacerbating the rise in output shrinking incomes in agriculture reverberated on the other sectors mainly manufacturing causing a large depression nowadays it is manufacturing that plays the role of epicenter of technical change falling incomes in manufacturing yield a lack of demand for goods produced in the rest of the economy namely the service sector this may be the deep rooted cause of the long lasting slump and the painfully slow recovery

consumption risk technology adoption and poverty traps evidence from ethiopia much has been written on the determinants of input and technology adoption in agriculture with issues such as input availability knowledge and education risk preferences profitability and credit constraints receiving much attention this paper focuses on a factor that has been less well documented the differential ability of households to take on risky production technologies for fear of the welfare consequences if shocks result in poor harvests building on an explicit model this is explored in panel data for ethiopia historical rainfall distributions are used to identify the counterfactual consumption risk controlling for unobserved household and time varying village characteristics it emerges that not just ex ante credit constraints but also the possibly low consumption outcomes when harvests fail discourage the application of fertilizer the lack of insurance causes inefficiency in production choices