Agricultural Plots, Labor Allocation, and Income Hiding in Ethiopia

Abstract

Past research has found that pressures to share income with family members and relatives can incentivize individuals to hide income, possibly distorting labor allocation and leading to inefficiencies. Due to the difficulty of observing hidden income, the majority of this research has used lab-in-the-field experiments, which raises concerns of external validity. In this paper, I present a novel way to observe hidden income on agricultural plots using household data from Ethiopia. To the best of my knowledge, this is the first paper to test income hiding hypotheses on agricultural plots. I develop a simple model which predicts income hiding is quadratic in distance from the plot to the dwelling, first increasing in distance and then decreasing. I construct a proxy for hidden income based on the difference between output per hectare constructed using enumerator-measured (crop-cut) yields and output per hectare constructed using self-reported yields. Analyses confirm the predictions of the model. Additional analyses suggest these findings are not driven by unobserved heterogeneity in plots. Ease of hiding income and the ability to translate output into cash are also important predictors of income hiding: plots with a single decision-maker and plots located in areas with easy access to markets are most likely to see the quadratic pattern predicted by the model. Finally, women appear to be more likely to hide income than men.