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This study uses household-level panel data from a nationally representative survey to estimate the effect of agricultural productivity shocks—as proxied by exogenous annual rainfall deviations—on education expenditures and children's work status in rural India. We find that a transitory increase in rainfall significantly reduces education expenditures and increases the likelihood of child labor across multiple work activities. Additionally, households owning land and those with better credit access increase the use of child labor as rainfall increases because labor (and land) markets are incomplete. The effects of productivity shocks are reinforced for marginalized castes and for less educated households, thereby exacerbating inequalities in education. [ABSTRACT FROM AUTHOR]

We argue that overconfidence wrongly inflates the expected returns to a risky income-generating activity. Overconfidence thus increases the willingness to take risks. We test this prediction using a sample of smallholder farmers from Ethiopia who face a risk-return trade-off in their crop cultivation choices. To meet their subsistence needs, these risk-averse farmers arguably have large incentives to wisely manage their risks. We find that overconfident farmers cultivate riskier crop portfolios. The relationship between overconfidence and risk taking is more pronounced for farmers who live near markets or are net sellers. Our results are robust to the inclusion of a wide range of controls (including local fixed effects, use of risk-managing measures, experience of idiosyncratic shocks, socioeconomic characteristics, measures of risk aversion, and personality traits) and instrumental variable estimation. The high volatility of agricultural income may thus not only be the result of a risky environment but also of farmers' individual psychological biases. [ABSTRACT FROM AUTHOR]