Rain and impatience: Evidence from rural Ethiopia

We have combined farm household panel data, weather data and discount rates, as measured by a hypothetical survey question, to estimate the impact of income on discounting. This paper has found that income variation driven by anomalies in rainfall during the main growing season is a strong predictor of farmers’ subjective discount rates. Farmers prefer a smaller immediate reward to a larger deferred one when affected by negative income shocks, while they display lower discount rates when the income shocks are positive. We have also found that higher discount rates are negatively correlated with profitable agricultural investments.