Labor Time Allocation of Farm Households : The Case of Volatile Food Prices

Subsistence farmers in low income countries are confronted with multiple risks. Hence, small scale farmers have developed several strategies to cope with weather related risks in order to self-insure against weather risks. Recent developments on global food markets have increased food price volatility, which puts in particular low income households at risk. When small-scale farmers allocate their labour time over different income generating activities, they face the risk of uncertain purchasing power of income in the presence of food price variability. Hence, the paper explores by using a simple household production model the theoretical prediction of labour time allocation between self-employment and wage labour work including uncertain purchasing power of wages. Then, theoretical predictions are being tested using an ICRISAT dataset for Indian farm households from six different states. Finally, policy implications will be drawn which point in the direction of insuring the purchasing power of income to thereby improve the allocation of labour time