Does Market Experience Attenuate Risk Aversion? Evidence from Landed Farm Households in Ethiopia

Melesse, Mequanint B.; Cecchi, Francesco

doi:10.1016/j.worlddev.2017.05.011

Cited by 27 publications

(19 citation statements)

References 76 publications

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“…Advances in behavioural economics include artefactual field experiments that offer insights into changes in individuals' risk preferences as a result of their exposure to output markets. The empirical analyses by Melesse and Cecchi (2017) in Ethiopia reveal that farm households with greater market experience are more risk tolerant. They indicate that risk-aversion is a trait that can be endogenously changed through increasing the households' exposure to markets, and thus the claim that farm households are inherently risk-averse may be excessive.…”

Section: Endogenous Risk Preferencesmentioning

confidence: 99%

“…To date, empirical studies have not explored this possibility as they have focused on the effects that farmers' risk preferences have on the uptake of WICI as demonstrated in Giné et al (2008); Cole et al (2013); Hill et al (2013); Karlan et al (2014); Jin et al (2016). However, the implicit assumption that farmers' risk preferences are exogenous and cannot be changed may be excessive (Melesse and Cecchi, 2017). Our study contributes to the literature by examining the impact of agricultural households' access to WICI on their risk-aversion, while taking into account the endogeneity of both risk preferences and WICI uptake.…”

Section: Introductionmentioning

confidence: 99%

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Impact of formal climate risk transfer mechanisms on risk-aversion: Empirical evidence from rural Ethiopia

2020

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This study examines the effect of smallholder farmers' access to a formal climate risk transfer mechanism on their risk preferences. Survey and experimental data were collected from smallholder farmers that have access to weather index-based crop insurance (WICI) in Ethiopia. We use an endogenous switching (ESP) model to address self-selection and simultaneity bias. Results from the ESP model show that farmers who purchased WICI are less likely to be riskaverse compared with non-purchaser farmers. Similarly, non-purchasers would have attained a significant reduction in their risk-aversion if they had taken up the insurance product. We also find that WICI has a positive and statistically significant effect on farmers' real-life risk-taking behavior as exemplified by mineral fertilizer use. The implication of our findings is that formal climate risk transfer mechanisms can positively influence households' economic decisions and outcomes, through reducing risk aversion. Therefore, they can possibly contribute to poverty alleviation and economic development within agrarian economies that are exposed to recurrent and severe climate shocks. JEL-Codes: C910, D030, I380, N270.

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Section: Endogenous Risk Preferencesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Impact of formal climate risk transfer mechanisms on risk-aversion: Empirical evidence from rural Ethiopia

2020

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“…7 We employ the Euclidian distance to the nearest permanent market as an indicator for access to markets. Distance to markets represent one of the key constraints to accessing markets (Renkow et al 2004;Melesse and Cecchi 2017). However, this measure has some limitations as the Euclidian distance measure fails to account for terrain and associated infrastructural differences.…”

Section: Data Sourcementioning

confidence: 99%

Access to markets, weather risk, and livestock production decisions: Evidence from Ethiopia

Abay¹,

Jensen

2020

Agricultural Economics

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Despite several studies showing the effect of access to markets and weather conditions on crop production, we know quite little on whether and how livestock production systems respond to variation in weather risk and access to markets. In this paper, we study whether and how livestock production responds to access to markets and varying weather risk. We also explore whether such responses vary across livelihood zones and livestock production systems. We study these research questions using information on the livestock production, ownership, and marketing decisions of households in Ethiopia. We find that households living close to markets are more likely to engage in market-oriented livestock production and use modern livestock inputs. We also find that households exposed to more unpredictable weather are less likely to engage in livestock production for markets. Rather, they are more likely to engage in livestock production for precautionary savings and insurance. Furthermore, greater rainfall uncertainty influences livestock portfolio allocation towards those types of livestock which can be easily liquidated, while also discouraging investment in modern livestock inputs. However, these responses and patterns vary across livelihood zones and production systems-most of these stylized responses and impacts are more pronounced in the arid and semi-arid lands of Ethiopia, where livestock herding remains a dominant source of livelihood. Those households relying only on livestock production seem more sensitive and responsive to weather risk and weather shocks. The heterogeneity in responses to and impacts of weather risk among farming systems and livelihoods highlights the need for more tailored livestock sector policies and interventions.

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“…Risk preference is the attitude of a decision maker to risks. It is another important factor for individuals to perceive decision-making background and make decisions towards risk [15][16][17][18]. Tanaka et al [19] propose that individuals' risk preference includes risk aversion and loss aversion.…”

Section: Introductionmentioning

confidence: 99%

Farmers’ Risk Cognition, Risk Preferences and Climate Change Adaptive Behavior: A Structural Equation Modeling Approach

Jia

Kuang

et al. 2019

IJERPH

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Improving local farmers climate change adaptive capacity is an important policy issue in rural China. This study investigates farmers risk cognition, risk preferences and climate change adaptive behavior. Based on unique data from a survey and a paired lottery experiment completed by 240 rural farmers in Chongqing City of China, this paper finds that farmers have a pessimistic risk cognition towards climate change and the typical farmers are risk-averse and loss-averse. Risk cognition and adaptation cognition have significantly positive influences on climate change adaptive behavior, and loss aversion has a significantly positive influence on farmers adaptation decisions. Loss aversion exerts a positive impact on risk cognition and adaptation cognition, and risk aversion has a positive impact on adaptation cognition. This paper contributes to the emerging literature that relates risk preference in experiments and risk cognition to farmers climate change adaptive behavior.

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Does Market Experience Attenuate Risk Aversion? Evidence from Landed Farm Households in Ethiopia

Cited by 27 publications

References 76 publications

Impact of formal climate risk transfer mechanisms on risk-aversion: Empirical evidence from rural Ethiopia

Impact of formal climate risk transfer mechanisms on risk-aversion: Empirical evidence from rural Ethiopia

Access to markets, weather risk, and livestock production decisions: Evidence from Ethiopia

Farmers’ Risk Cognition, Risk Preferences and Climate Change Adaptive Behavior: A Structural Equation Modeling Approach

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