Uncertainty,risk, and wealth and income distribution in peasant agriculture

An ethical justification of the market system is that while generating inequality of income distribution it nevertheless provides an equal opportunity for people to improve their material well‐being (1, p. 169). It is argued that the market system creates a society of unequals, but that it is a fluid society in which, though all may not improve absolutely and relatively, the opportunity to do so is randomly distributed through the population. In terms of economic development, this implies that within a free market framework, the distribution of the gains from growth need not be biased towards any economic class. To use a cliche, one of the justifications of a competitive market system is that there is nothing inherent in its operation which makes ‘the rich get richer and the poor get poorer’. The main barriers to economic and social mobility are thus treated as imperfections in the market—racial and ethnic discrimination, differential access to capital markets, traditional constraints on job choice, and so on.

Recently Michael Lipton has suggested an analytical framework for explaining the optimizing behaviour of peasant cultivators which challenges this sanguine view (2). His ‘survival algorithm’ implies that inherent in the market organization of economic society is a tendency for the benefits from economic development to be distributed systematically in favour of the wealthier groups in the society.

In the following section I shall summarize Lipton's hypothesis and demonstrate its implications for the distribution of wealth and income over time in the agricultural sector of developing countries. In Section III policy conclusions of the analysis are presented.