Why Farmers Sometimes Love Risks: Evidence from India

Maertens, Annemie; Chari, Amalavoyal V.; Just, David R.

doi:10.1086/674028

Cited by 11 publications

(4 citation statements)

References 30 publications

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“…To set risk aversion and discount rate, we first normalized the distribution of agricultural net income. Then, as risk aversion and discount rate correlate with household income (Bauer et al, 2012;Just & Lybbert, 2009;Maertens et al, 2014), we rescaled the normalized income distribution with the mean and standard deviation of the (marginal) risk aversion 𝜎 (0.02, 0.82; Just & Lybbert, 2009) and discount rate r 0.159, 0.193;Bauer et al2012) of Indian farmers. Noise was added to both to prevent that each present-biased agent is also risk taking by definition.…”

Section: Risk Aversion and Discount Ratementioning

confidence: 99%

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Adaptive Behavior of Over a Million Individual Farmers Under Consecutive Droughts: A Large-Scale Agent-Based Modeling Analysis in the Bhima Basin, India

Kalthof,

de Bruijn,

de Moel

et al. 2024

Preprint

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Abstract. Consecutive droughts, becoming more likely, produce impacts beyond the sum of individual events by altering catchment hydrology and influencing farmers' adaptive responses. We use GEB, a coupled agent-based hydrological model, and expand it with the Subjective Expected Utility Theory (SEUT) to realistically simulate farmer behavior and subsequent hydrological interactions. We apply GEB to analyze the adaptive responses of ±1.4 million heterogeneous farmers in India's Bhima basin over consecutive droughts and compare scenarios with and without adaptation. In adaptive scenarios, farmers can either do nothing, switch crops, or dig wells, based on each action’s expected utility. Our analysis examines how these adaptations affect profits, yields, and groundwater levels, considering, e.g., farm size, risk aversion and drought perception. Results indicate that farmers’ adaptive responses can decrease drought vulnerability and impact after one drought (x6 yield loss reduction), but increase it over consecutive due to switching to water-intensive crops and homogeneous cultivation (+15 % income drop). Moreover, adaptive patterns, vulnerability, and impacts vary spatiotemporally and between individuals. Lastly, ecological and social shocks can coincide to plummet farmer incomes. We recommend alternative or additional adaptations to wells to mitigate drought impact and emphasize the importance of coupled socio-hydrological ABMs for risk analysis or policy testing.

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Section: Risk Aversion and Discount Ratementioning

confidence: 99%

“…Interest rates: To account for the variation in access to credit and interest rates among farmers, we assigned each agent an interest rate based on their total landholding size, with smaller farmers receiving higher and larger farmers lower rates (Appendix B.2, Maertens et al, 2014;P. D. Udmale et al, 2015).…”

Section: Risk Aversion and Discount Ratementioning

confidence: 99%

Adaptive Behavior of Over a Million Individual Farmers Under Consecutive Droughts: A Large-Scale Agent-Based Modeling Analysis in the Bhima Basin, India

Kalthof,

de Bruijn,

de Moel

et al. 2024

Preprint

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“…In low-income countries, some studies also reported less risk taking (11), but others found no association (24)(25)(26), or even more risk taking. For instance, the poorest Indian farmers were found to be extremely willing to take risks (27). Other studies focused on extreme scarcity, and found an increase in risk taking.…”

Section: Introductionmentioning

confidence: 99%

Poverty is associated with both risk avoidance and risk taking: an empirical test of the desperation threshold model.

de Courson,

Frankenhuis,

Nettle

2024

Preprint

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In situations of poverty, do people take more or less risk? Some theories state that poverty makes people 'vulnerable': they cannot buffer against losses, and therefore avoid risk. Yet, other theories state the opposite: poverty makes people 'desperate': they have little left to lose, and therefore take risks. Each theory has some support: most studies find a negative association between resources and risk taking, but risky behaviors such as crime are more common in deprived populations. Here, we test the 'desperation threshold' model, which integrates both hypotheses. The model assumes that people attempt to stay above a critical level of resources, representing their 'basic needs'. Just above the threshold, people have too much to lose, and should avoid risk. Below it, they have little to lose, and should take risks. We conducted preregistered tests of this prediction using longitudinal data of 472 adults over the age of 25 in France and the UK, who completed a survey once a month for 12 months. We examined whether risk taking first increased and then decreased as a function of objective and subjective financial resources. Results supported this prediction for subjective resources, but not for objective resources. Next, we tested whether risk taking varies more among people who have fewer resources. We find strong evidence for both more extreme risk avoidance and more extreme risk taking in this group. We rule out alternative explanations related to question comprehension and measurement error, and discuss implications of our findings for welfare states, poverty, and crime.

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“…In all cases, farmers rather rely on expected profits in good conditions (return on investment) than on taking into account occasional losses. Evidences from India through a study on why farmers sometimes even seem to like taking risks, came partly to similar findings, showing the existence of a relationship between risk-loving behavior and wealth and assets (Maertens et al, 2014). Hence, farmers who are afraid of taking risks try to limit possible losses even if it means reducing the likelihood of gains (i.e.…”

Section: Discussionmentioning

confidence: 85%

Coping with risk and climate change in farming: exploring an Index-based crop Insurance in Burundi

Ndagijimana¹

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Why Farmers Sometimes Love Risks: Evidence from India

Cited by 11 publications

References 30 publications

Adaptive Behavior of Over a Million Individual Farmers Under Consecutive Droughts: A Large-Scale Agent-Based Modeling Analysis in the Bhima Basin, India

Adaptive Behavior of Over a Million Individual Farmers Under Consecutive Droughts: A Large-Scale Agent-Based Modeling Analysis in the Bhima Basin, India

Poverty is associated with both risk avoidance and risk taking: an empirical test of the desperation threshold model.

Coping with risk and climate change in farming: exploring an Index-based crop Insurance in Burundi

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