Risk preferences significantly affect household investment in timber forestry: Empirical evidence from Fujian, China

Abstract

Implementing another round of massive collective forest tenure reform in China since in 2008 has not materialized the government's expectation on small-scale timber forestry-improved management practices and resource quality. One underlying cause to this outcome is farmer's risk-averse attitude, which has thus far garnered little research attention. In this study, we combine the prospect theory and a lottery experiment to measure individual risk preferences on timber forestry investment. Based on a sample of 303 households conducted in 2018 in Fujian, China, we find that the 'household risk preference' parameter has a significant negative impact on both the decision to invest in timber forestry and the intensity of investment. Further, the 'loss aversion' and 'probability weighting' parameters affect household investment intensity negatively. These results indicate that the more risk averse rural households are, the less willing they are to invest in timber forestry, and the lower their investment intensities are. Also, the effect of the risk preferences on cash outlay is larger than on labor cost. These insights have direct implications for better designing tenure reform and other policies to promote smallholder forestry in China and beyond.

Risk Preferences, Productive Investment and Straw Return Technology Adoption by Farmers in China

“…Based on prospect theory, it can be argued that risk-averse farmers prefer to minimize loss rather than maximize profit in production decision-making (Duan et al, 2021) due to the large uncertainty and risk in agricultural production (Hao, 2010). Although straw return technology can improve the ability of crops to resist natural disasters (Xu et al, 2021), when compared with direct open-air incineration, straw return technology requires additional costs and may increase the incidence of crop diseases and pests and require the use of more pesticides (Jiang et al, 2021).…”

“…investment willingness and investment intensity (Duan et al, 2021). This relates to the high risk of agricultural production, which makes farmers with stronger risk aversion more reluctant to invest in high-input production systems (Oyinbo et al, 2019).…”

“…Therefore, investing in productive assets (such as tractors and harvesters) is conducive to farmers' straw returning. Some studies have shown that farmers who prefer risk are more willing to take risks, lay more importance on the potential benefits of modern technology and high-risk investment, and are more willing to make productive investments (Mao et al, 2019;Giné and Yang, 2009;Duan et al, 2021). It can be inferred that risk preferences will affect farmers' productive investment, and then affect their adoption of straw return technology.…”

A sequential game-play modelling on forest-title mortgage loans based on Chinese forester resource and assets valuation

“…For example, they have a long growth cycle and are easily impacted by natural disasters. These special traits make up the important reason for this type of loan to face high financing risk (Duan et al, 2021). Ochoa-gaona (2001) and Chen and Innes (2013) pointed out that forest resource assets are often operated with the backward technology, they are poorly managed, and have certain inherent limitations.…”

Risk Preference, Health Risk Perception, and Environmental Exposure Nexus: Evidence from Rural Women as Pig Breeders, China

“…However, other scholars considered that the classification criteria of risk preference are unclear and not strict. It is reasonable to employ an experimental economics method to measure the degree of risk preference (Duan et al, 2021;Nie et al, 2021). Besides, scholars have also focused on the role of risk perception.…”