Dr. Jemal Adem

Livelihood Vulnerability to Shocks, Behaviour and Investment in Education: Essays in Behavioural Development Economics

Year: 2019

Théophile Azomahou


The dissertation provides theoretical analysis and empirical evidence on the psychological and social drivers of economic behaviour and decision making. It further applies the theoretical insights to explain economic decisions in developing countries. The main content of the dissertation starts with developing a generalized theory of reference dependent risk preferences.  The theory asserts that the degree of individual loss aversion depends on his/her degree of ambition or drive for achievement. The formulation provides a systematic and endogeneous reference point for decision making under risk, and allows for heterogeneity of preferences and complete interpretation of observed behaviour. The third chapter endogenizes risk ambition as a function of inequality and social comparison. It also shows that income redistribution raises the risk ambition of the poor but may reduce that of the rich section of a society. The fourth chapter empirically investigates the effect of background risk, specifically livelihood vulnerability to shocks, on risky preferences. Consistent with the hypothesis of “risk vulnerability”, livelihood vulnerability to drought raises individual risk aversion in lottery games and technology adoption. The fifth and sixth chapters of the dissertation use the theoretical and empirical insights from the preceding chapters to explain household investment decision on child education in the context of low income countries. The fifth chapter asserts that cost-sharing schemes are more effective tools of achieving specific development objectives than lump sum grants. The findings in the sixth chapter indicate that parental aspirations for child education and perceptions about the academic capability of children are important determinants of parental investment decision on child education.