We present an agricultural household model of consumption, storage, savings, and labor decisions and argue that food crop storage under price risk cannot be fully explained by “risk taking” or speculative behavior alone, as the commodity storage literature suggests. Often, and especially in the case of small farmers, the explanation lies in the household’s aversion to risk and in food security considerations. The empirical analysis, using ICRISAT quarterly panel data from Shirapur, provides evidence against risk-neutral preferences. We find that risk response is particularly significant in the storage and labor decisions of small farm households.
“A Household Model of On-farm Storage Under Price Risk,” A. Saha, J. Stroud, American Journal of Agricultural Economics, 76 (1994), 522–534