Numeracy, financial literacy, risk attitudes, and impatience of forest dependent communities: evidence from Andhra Pradesh

Abstract

This thesis studies numeracy, financial literacy, risk attitudes, and time discount rates (impatience) of the people in the bottom of the pyramid. These issues are addressed in the context of forest dependent communities (FDCs) in India using data from Andhra Pradesh. The literature thus far has not addressed these issues in the context of such special demographic groups like FDCs. The Government of India launched the joint forest management (JFM) program in 1990 with the involvement of FDCs. This, along with the interactions and with the help of government officials, has not only helped them increase their income levels, but also helped them gain first hand exposure to financial management at JFM. In this context, the JFM “treatment” effect makes studying their numeracy, financial literacy, risk attitudes and impatience of interest. FDCs covered in the study include two different geographical regions from the Indian state of Andhra Pradesh – Rayalaseema (a relatively dry forest region) and the coastal region (forest region with relatively more fertile soil). Numeracy and financial literacy of FDCs were assessed through standard questionnaires and their determinants were estimated using ordered response models. Numeracy was found to correlate positively with education and proximity to urban centers. Similar results were found for financial literacy, with numeracy explaining most of the variation in financial literacy. Attitudes towards risk was measured as the revealed degree of risk aversion (as a constant relative risk aversion coefficient) from the multiple price list methodology and impatience was measured as the revealed individual time discount rate from the choice task methodology. Using interval regression, the study also looked at the role of income and socioeconomic variables on their risk attitudes and impatience. For members of FDCs from Rayalaseema, income was not found to be a contributor towards risk aversion. Including socioeconomic variables in the regression showed that, on average, being men, married and being a shared decision-maker within family contributed positively to risk aversion, and membership to managing committee and having adult children in the family negatively so. Degree of risk aversion for members of FDCs in the coastal region, however, did show a role for income, albeit weak statistically. In particular, members from the low and high income groups were found to be risk seeking and those from the middle income groups risk averse, with family size and education contributing positively to risk aversion and proximity to urban centers negatively so. Members of FDCs from Rayalaseema were found to be more impatient compared to their counterparts from the coastal region. Income of members of FDCs both from Rayalaseema and the coastal region did not contribute to their impatience. For members of FDCs from Rayalaseema, on average proximity to urban centers contributed positively to impatience and membership to “other backward class” (relative to “scheduled caste” and “scheduled tribe”) negatively so. For members of FDCs from the coastal region, family size and being a shared decision maker within the family contributed negatively to impatience. Despite income levels being not significantly different, the impatience of the FDCs in Rayalaseema and the coastal region were markedly different. As the findings from the study suggest, there are other social (and region specific) factors that drive the risk attitudes and impatience of FDCs from these two regions.