Culture, knowledge and risks : insights from rural Vietnam

Abstract

An understanding of risk attitudes is vital to assess economic behaviors, decision-making and economic outcomes. Therefore, studies on risk attitudes provide insights into social protection policies aiming at the disadvantaged groups particularly in low-income countries. However, debate continues on an effective measure of risk attitudes and on the relationship between risk attitudes and economic wellbeing. Particularly, challenges arise from widely diverse populations with respect to cultural and socioeconomic backgrounds. A large and growing body of literature has investigated the relationship between risk attitudes and economic welfare. However, the results of those studies were far from a consensus ranging from an insignificant to a significant negative or positive correlation. Additionally, knowledge including both formal education and subjective knowledge plays an important role in economic decision-making and economic outcomes. Moreover, risk-taking enhances the learning process and technology adoption that subsequently improve livelihoods. Therefore, it is critical to evaluate the interrelation between knowledge and risk attitudes in economic behaviors, decision-making and economic outcomes. Furthermore, many studies have highlighted the role of cultural factors in human behaviors and attitudes including that towards risks. Therefore, understanding of the variation of risk attitudes across different cultural groups could shed light on the linkage between culture and economic development, poverty and inequality. A multiethnic population of rural Vietnam serves as an interesting sample to investigate the involvement of cultural factors in the aforementioned issues. More specifically, Vietnam has 53 ethnic minority groups that mostly concentrate in rural and remote areas are more likely to experience chronic poverty. The economic gap between ethnic minorities and the ethnic majority (Kinh) is increasing despite the remarkable success in economic growth of that country in the recent decades. Empirical evidence attributed the existing ethnic gap in Vietnam to the difference in endowments or to the returns to endowments across groups. However, little is known about whether risk attitudes that differ across ethnic groups could contribute to a deeper understanding of why the efforts towards poverty alleviation are likely to be less effective among ethnic minorities. The primary objective of this thesis is to measure attitudes towards risks and examine the relationship between risk attitudes and decision-making and economic welfare among a multiethnic population of rural Vietnam. It is also to understand farmers’ knowledge and relations among risk attitudes, knowledge and economic outcomes. The first specific objective is to evaluate the survey-based measure of risk attitudes. This survey question is expected to capture the intrinsic or the most general individual attitudes towards risks. By applying it on heterogeneous subjects, this research aims to explore the important predicting factors of risk attitudes among cultural and socioeconomic variables. The second objective seeks for evidence of a complex relationship between risk attitudes and economic welfare among multiethnic communities. The third objective is to examine the relations between farmers’ risk attitudes, knowledge, management ability and agricultural productivity. Data used to explore the objectives are sourced from the long-term socioeconomic panel household survey conducted in Vietnam and Thailand (TVSEP) since 2007 in three provinces of each country. In this thesis, the data from two provinces in the Central Vietnam, namely Dak Lak and Thua Thien Hue (Hue) are used. Additionally, the thesis is based on data collected by a special survey particularly conducted with the households in Hue province in 2014 and 2015. The first essay documents the validity of a survey question to measure risk attitudes that is assessed by its significant correlations with the individual and household characteristics and by its power to predict outcomes of a risk experiment. Multivariate analysis method is applied using Interval regression, Ordered Probit and OLS regression models under various specifications. The robust results confirm that the individual risk attitudes measured by a survey question can be significantly explained by the individual characteristics such as height, education and ethnicity. The results remain consistent when controlling for further socioeconomic backgrounds. This study documents significant difference in risk attitudes between the ethnic majority and the ethnic minority. Furthermore, the survey-based measure consistently predicts risky behaviors and its predictive power remains consistent across models and specifications. The results confirm that the survey-based item is effective to measure risk attitudes of a multiethnic community The second essay introduces an exploration into the relationship between economic welfare and risk attitudes in the presence of socioeconomic and cultural diversity of different ethnic groups. The results indicate differences in both risk attitudes and economic welfare between the ethnic majority and the ethnic minorities. Furthermore, the willingness to take risks significantly diverges among the ethnic minorities, although they are economically homogenous. Empirically, in the first step, a quadratic form of risk attitudes is added to test whether there is a non-linear relationship between risk attitudes and economic welfare when analyzing a mixed sample of the ethnic minority groups. The results from a fixed effects model and a correlated random effects model, namely Hausman -Taylor confirms a U-shaped relationship between risk-taking and economic welfare with a switch from negative to positive when the willingness to take risk reaches a certain threshold on the eleven-point Likert scale. In the second step, a positive and mutual relationship between risk-taking and economic welfare among the ethnic majority is tested by employing a simultaneous estimation using the Three Stage Least Square method. The results show that an increase in the willingness to take risks by one point associates with an increase in economic welfare by about 7%. The third essay presents an examination of the relationships among farmers’ risk attitudes, knowledge, decision-making skills and agricultural performance. Risk attitudes are measured by alternative methods and farmers’ knowledge is scored by using a set of two-choice questions and farmers’ subjective knowledge is measured by using five point Likert scale, separately for crop and livestock production. Farmers’ decision-making skill is tested by using decision games separately for crop and livestock. Indicators of agricultural performance are calculated from the average outcomes of the main agricultural activities such as crop and livestock production using data from a long panel survey. The results show that farmers’ performance has significant correlation with their subjective knowledge, albeit unlikely with technical knowledge. Farmers received limited support from the extension institutions and tend to be risk-averse. Compared with crop production, farmers have better knowledge livestock and they performed better in the decision game in respect to livestock production. This thesis contributes to scientific literature that can be useful for policy-making in different ways. Firstly, the findings strengthen the strand of studies that uses a survey question to measure individual risk attitudes by applying this measure on culturally diverse and low-educated agents. Secondly, the thesis emphasizes the role of cultural factors characterized by ethnicity in the variation of risk attitudes and economic welfare. It sheds light on the controversial mixed results of the relationship between risk attitudes and economic welfare in literature. The results document the driving force of cultural factors in risk attitudes and the association among risk attitudes, decision-making and economic welfare. Thirdly, the results indicate a large variation in farmers’ knowledge and a strong tendency of risk aversion among the target sample of farmers. Agricultural productivity is more likely related to subjective knowledge rather than to technical knowledge and ability. A need to improve farmers’ technical knowledge and management skills is suggested to enhance agricultural productivity. Additionally, the thesis suggests social protection policies to consider risk-taking, particularly when targeting different small ethnic groups and less knowledgeable farmers. Fourthly, the focal methodological contribution is that the thesis introduces new approaches to examine the complex relationship between risk attitudes and economic welfare, particularly in the context of multiethnic populations. Finally, the thesis introduces the involvement of cultural factors in altering risk attitudes and its relationship with economic welfare. Thus, it provides insights into complex effects of cultural factors and the divergence of risky behaviors and knowledge on economic development and inequality.