Are production risk and labour market risk covariant?

✍ Scribed by Sunil Kanwar

• Publisher: John Wiley and Sons
• Year: 1998
• Tongue: English
• Weight: 184 KB
• Volume: 10
• Category: Article
• ISSN: 0954-1748
• DOI: 10.1002/(sici)1099-1328(199801)10:1<129::aid-jid505>3.0.co;2-9

✦ Synopsis

While in a given situation the production risk that farmers face may well be independent of the labour market risk, in general these may be highly related in the context of the local labour market. The strength of this relationship has important implications not only for the correct speci®cation of the household model under risk, but also for addressing the issue whether the farm household can use the labour market as a hedge against production uncertainty. Clearly, if the two risks are covariant, the possibility of doing so may be very small. If, instead, they are independent, the farm household may avail of the local casual labour market to balance the production risk it faces. Using a large sample of farmers we ®nd that labour market risk and production risk are not causally related in the Granger sense.