Date of Award:

5-2015

Document Type:

Thesis

Degree Name:

Master of Science (MS)

Department:

Applied Economics

Committee Chair(s)

DeeVon Bailey

Committee

DeeVon Bailey

Committee

Ruby Ward

Committee

D. Layne Coppock

Committee

Alan Stephens

Abstract

Ethiopia is one of the poorest and most populated countries in the world. It is also one of the largest receivers of foreign aid in the world. The Borana Plateau in the Oromia region is one of the poorest regions in southern Ethiopia. The local population in this region has relied on livestock for their livelihood for many generations. The growing number of humans and livestock on the Borana Plateau has caused the rangeland to be degraded. Coupled with more frequent and severe droughts, this growth can cause the loss of a large number of the livestock in this region from time-to-time. Several scientific and social studies have been conducted regarding how to maintain more sustainable livelihoods on the Borana Plateau in the face of all of these challenges. Most of the social science literature has focused on the poor and how to build their resiliency in the face of poverty and drought. Research about poor pastoralists is very important. However, it is likely the wealthy pastoralists of the region have the greatest potential to fuel economic activity by their investment decisions.

This thesis focused on an analysis of portfolio diversification and risk management by wealthy pastoralists on the Borana Plateau. The method was to choose 12 important and wealthy pastoralists to survey to obtain data for the analysis. The idea was that wealthy pastoralists have more discretionary income available to invest compared to other local people. They have large-sized cattle herds, which leads to a larger-than-average consumption of the community water and forage resources. Wealthy pastoralists can also provide employment for the local communities for milking and herding activities. Understanding the diversification strategies used by this segment of the pastoralist population also provides some insights about the diversification strategies that are available and the barriers that exist to accessing different forms of investment to allow for diversification. This type of information may help us understand how to aid more general economic development in the Borana Plateau given that investment decisions of the wealthy are relatively important compared to the general population. It is also likely true that the livestock investment decisions by wealthy pastoralists may point to the future configuration of livestock herds on the Borana Plateau.

A nonlinear quadratic program was used to estimate five optimal portfolios using a mean-variance (E-V) formulation for minimizing variance. These optimal portfolios were analyzed together with the portfolios actually held by the 12 participants using risk analysis. This included using portfolio analysis, stochastic dominance, and stochastic efficiency, and estimating risk premiums for different investment alternatives. It was found that large investments in camels, savings accounts, and real estate are preferred by very risk-averse producers. A combination of cattle, camels, and savings tended to make up the portfolios of more risk-seeking participants.

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