Most studies investigating the role of uncertainty in smallholder decision making have focused on either shocks or some notion of risk based on variability. When analyzing household production behavior, considering only yield variability ignores the potential effect of shocks on yield variability, and input allocation decisions. In this thesis, both shocks and yield risk are considered. We use a two-period expected utility model to analyze smallholder labor allocation sequentially. The data for this paper were obtained from a panel survey conducted in southern Ghana from 1996 to 1997. The approach used in this paper allows the incorporation of temporal uncertainty by introducing the concepts of ex ante and ex post yield risk which were briefly discussed by Sandmo (1970) and Holt et al. (1992). We find evidence of sequential dependence of labor decisions. Labor allocation in the planting period of the season helped explain labor allocation in the subsequent preharvest period of the season. Damage to stored crops in the planting period and negative health events experienced by the household during the second part of the previous season are important for ex post labor allocation. Household ex post labor allocation responds positively to ex post yield risk. Households shift labor to non-farm activities in response to ex post yield risk in order to smooth their incomes.
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