Holy cows or cash cows?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in ABSTRACTIn a recent paper, Anagol, Etang and Karlan (2013) consider the income generated by these owning a cow or a buffalo in two districts of Uttar Pradesh, India. The net profit generated ignoring labour costs, gives rise to a small positive rate of return. Once any reasonable estimate of labour costs is added to costs, the rate of return is a large negative number. The authors conclude that households holding this type of assets do not behave according to the tenets of capitalism. A variety of explanations, typically appealing to religious or cultural factors have been invoked for such a puzzling fact.In this note, we point to a simple explanation that is fully consistent with rational behaviour on the part of Indian farmers. In computing the return on cows and buffaloes, the authors used data from a single year. Cows are assets whose return varies through time. In drought years, when fodder is scarce and expensive, milk production is lower and profits are low. In non-drought years, when fodder is abundant and cheaper, milk production is higher and profits can be considerably higher. The return on cows and buffaloes, like that of many stocks traded on Wall Street, is positive in some years and negative in others. We report evidence from three years of data on the return on cows and buffaloes in the district of Anantapur and show that in one of the three years returns are very high, while in drought years they are similar to the figures obtained by Anagol, Etang and Karlan (2013).

Do Cows Have Negative Returns? The Evidence Revisited

“…If instead we set opportunity cost of labor to roughly half the statutory minimum wage, which is the average market wage for women for unskilled labor observed in the sample, the average returns are in the order of -2% on average and vary between negative 35% (in the lowest quintile of cattle value) and positive 5% (in the highest). Similarly to Attanasio and Augsburg (2014) we find that average returns are considerably higher in times of favorable weather conditions (positive 8% on average in 2009/10) than in periods with low rainfall levels (negative 14% on average in 2007). In contrast to average returns, marginal returns are positive at all levels of cattle value even after accounting for labor costs.…”

“…Overall we believe that the findings give little reason to speak of a paradox of cattle accumulation. More generally, we think the findings and discussion make a useful contribution to an important debate initiated by Anagol et al (2013), Morduch et al (2013), Attanasio and Augsburg (2014)…”

“…Anagol et al (2013) conclude that households holding ownership of cattle cannot be explained by fully rational economic behavior and put forward a number of potential alternative explanations: better quality of home produced milk, preference for illiquid savings and the social and religious value of cows. Attanasio and Augsburg (2014) have very recently revisited the issue and argue that variation in returns with weather conditions is more likely to explain why Anagol et al (2013) find negative average returns. The authors show that Anagol et al (2013) collected data during a drought period in which fodder was scarce and fodder prices high.…”

“…We also use data from Andhra Pradesh but from alternative years. On one hand we want to see how generalizable the findings by Anagol et al (2013) as well as Attanasio and Augsburg (2014) are and on the other hand -and more importantly -we complement the accounting approach proposed by Anagol et al (2013) which basically serves to calculate the average profitability of holding cows, with an analysis of the marginal profitability. Whereas average profitability just informs whether it is economically beneficial to hold a certain quantity or value of cows, estimating the marginal profitability allows deriving the benefit of an additional dollar invested in cows and shows how the profitability evolves with the value already invested.…”

“…Marginal returns are thus an important parameter for households that have to decide whether to invest further in cows or rather in something else. In contrast to Anagol et al (2013) and Attanasio and Augsburg (2014), we also address endogeneity issues that can potentially bias estimates of average and marginal returns. To this end we rely on panel data and employ an instrumental variables (IV) approach, where we instrument the value of cattle owned with the exposure to the National Rural Employment Guarantee Act (NREGA).…”