in the last four decades (Aryeetey 1997). But the fact that saving is low does not
mean households have no assets (de Janvry et.al 1991). This raises considerable interest
in the issue of what determines how households allocate their portfolio of assets. It is
certainly important to examine the diversity in asset choices rural households make.
A diverse portfolio of assets is not only critical for households to cope with unexpected
shocks, but can free access to a range of consumption smoothing options that are vital for
them to maximize utility over time. Diversity in asset choice is also important in order to
allow households to manage risk in any one period. These attributes are especially
important in developing countries where the lack of sufficient access to consumption
smoothing mechanisms can perpetuate and worsen poverty. A household that is
constrained in its access to credit or other assets may not be able to survive a negative
shock. In practice, many households do survive, but at the cost of adopting an extremely
risk averse production strategy. In many rural areas, for example, this strategy might be
reflected in the sacrifice of expected return as farmers choose safer, lower yield crops.
This perpetuates the cycle of poverty and hampers economic growth as the credit and/or
other constraints push farmers to a sub-optimal path