An Employment Guarantee as Risk Insurance?

This paper assesses inhowfar employment guarantees can support households in managing agricultural production risks. Using representative panel data for Andhra Pradesh, India, it analyzes the effects of the National Rural Employment Guarantee Scheme (NREGS) on households' crop choices. This paper shows that the introduction of the NREGS reduces households' uncertainty about future income streams because it provides reliable employment opportunities in rural areas independently of weather shocks and crop failure. Households with access to the NREGS can therefore shift their production towards riskier but also more pro table crops. These shifts in agricultural production can considerably raise the incomes of smallholder farmers. Linking the employment guarantee to risk  considerations is the key innovation of this paper. Therewith, it provides empirical evidence that employment guarantees can, similarly to crop insurance, help households in managing agricultural productions risks and contributes to the ongoing debate on the effects of the NREGS on agricultural productivity.

Keywords: Uncertainty; Employment Guarantee; Crop choice
JEL: I38; O12; Q16

Paper written by author from the German Development Institute (Deutsches Institut fuer Entwicklungspolitik) and University of Passau, using Young Lives data from the UK Data Archive.