3.2.2 Economic Rationality and Risk

Until recently, a common misunderstanding was that small-scale producers in the Third World were economically irrational. It was thought that they were not able to evaluate possible economic returns to alternative investments of their resources as a basis for decision making. It is now accepted by many, though not all, development experts that Third World gardeners and farmers understand these concepts very well, and only appear to be acting “irrationally” because the outsider does not understand the local conditions.⁹ However, it is still assumed that the main criterion gardeners and farmers use in making decisions is how to optimize their economic return.

Figure 3.1 shows some of the relationships that may determine how much investment of time, including labor and management, as well as other resources such as water, organic matter, or land a gardener will be willing to invest to increase the amount he is able to harvest from the garden. This production possibility curve illustrates the general rule that as inputs (such as hours of labor) increase, the return (garden harvest) increases at a slower rate. Economists refer to this as diminishing marginal returns.

Figure 3.1 Production Possibility Curve: The Relationship Between Investments and Returns

For example, a gardener is working in his garden 1 hour a week, and decides to work 1 additional hour (see Figure 3.1). The increase in his returns (A) for that additional hour will be greater than the increase in his returns from an additional 1 hour a week if he had already been working in the garden 9 hours a week (B). This is because the more a person works the more tired he becomes, and because the first jobs done in the garden are those with the highest output per unit input, for example watering, pulling the biggest weeds, transplanting, and managing the most harmful pests. Minor tasks that are done later will therefore have a lower return, for example, pulling smaller weeds, and managing the less damaging pests. If the gardener is sick, or lacks energy because of food shortages, his interest and ability to work in the garden will also be affected (sections 2.3.3 and 2.3.4). Adopting different techniques can sometimes increase the productivity of labor. For example, a person who keeps his garden well mulched in the hot, dry season, or who uses a hoe, may be able to produce more per hour of labor than someone who does not mulch, or who does not use hand tools.

Another reason why gardeners and farmers do not often invest the time and resources to produce the maximum possible yields or profits (point X in Figure 3.1) from their plots is because of their perception of risk. Risk is the gardener’s judgment about the probability of failure due to his inability to predict uncertain events. For example, a gardener may try to plant as early as possible in the rainy season to have harvests sooner. However, the earlier he plants, the greater his risk of seedlings dying for lack of rain, since the timing and amount of rains at the beginning of the rainy season are very uncertain. Information on past events, like records of total monthly rainfall, or years or even generations of past experience, can decrease uncertainty about future events and the risks involved in basing decisions on these events. But this information does not eliminate risk (Box 11.3 in section 11.4.1).

Risks often increase as production approaches the maximum, in part because increasing production decreases diversity on many levels (section 14.2). Modern crop varieties, for example, may produce larger harvests than folk varieties if they are supplied with optimal water, nutrients, and protection from pests. However, when a drought, pest invasion, or other unforeseen event occurs, the harvest will be lower than with folk varieties (section 10.4). The gardener’s losses will be even greater than the loss of harvest if he invested in inputs such as chemical fertilizer. Thus with modern varieties the gardener’s risk is often greater.

Again, it is necessary for us to go beyond conventional economics. The goal of gardeners and farmers is not to produce as much as possible, but to use resources for a number of different purposes to achieve the greatest overall benefit. Therefore, deciding how much time and how many other resources to invest in the garden (Figure 3.2) will also depend on the returns to alternative uses of the same resources, including investing in field crop production, wage labor, crafts, school, religious activity, or building and maintaining social relationships.¹⁰ People will stop gardening when they believe that the returns are not worth the effort.¹¹

Figure 3.2 Work is an Investment in the Garden