Essays on uncertainty and sustainability in the semi-arid tropics

This study explores the effects of uncertainty on sustainability in rural areas of the semi-arid tropics characterized by mixed crop and livestock farming subject to frequent drought and lack of formal financial and insurance institutions. The fundamental hypotheses are: (i) Uncertainty due to drought induces precautionary saving; (ii) Saving takes a form of livestock holdings because livestock is a relatively safe asset and there is no formal saving institution. This combined with open access to common-pool resource results in overgrazing; (iii) Formal drought insurance will reduce overgrazing. The household's ability to smooth consumption and the village's ability to manage grazing land are the two key concepts of sustainability in this study. They are examined theoretically and empirically in four independent essays.;The first essay is a literature review. The second essay is original extensions of the models found in the literature. Effects of risks on saving are examined in the models, and it is found that precautionary demand for saving exists if saving is riskless.;In the third essay, using a static household portfolio model, conditions for overgrazing are examined by comparing an aggregation of household equilibrium livestock holdings with the social optimal livestock holding. Since households in this model are engaged in both crop production and livestock husbandry at the same time, the model predicts that overgrazing does not necessarily occur even under open-access. If crop production risk is high enough, overgrazing will occur even if the expected return to crop production is greater than that to livestock holdings.;The fourth essay empirically explores potential demand for a hypothetical formal drought insurance scheme and the determinants of such demand using household data from Burkina Faso. Effective demand is found in all agroclimatic zones, but its size is correlated with the drought risk of the zone. The determinant analysis shows that those who have large crop stocks tend to demand less insurance, while the effects of livestock holdings and off-farm income are ambiguous. But some households keep large livestock holdings but are not sufficiently self-insured. Those households may purchase insurance to substitute for livestock holdings.