An empirical assessment of farmers' risk attitudes in flood-prone areas of Pakistan

Abstract

Farmers are confronted with several sources of climatic risks. As such, their risk attitudes play an important role in farm management decisions. Few studies have attempted to explore farmers' risk attitudes in flood-prone areas. This study examines the effects of socio-economic factors on risk attitudes of farmers in a flood-prone area of Pakistan. The data were collected from 168 subsistence farmers through a standardized questionnaire. The farmers were selected through multi-stage sampling techniques. For farmers' risk attitude measurement, Equally Likely Certainty Equivalent (ELCE) method and a cubic utility function were employed. Risk perceptions of farmers were measured by the risk matrix technique. A Logit model was employed to investigate the effects of socio-economic factors on farmers' risk attitudes. The findings of the study reveal that the majority of farmers were risk averse in nature. The results for the logit model show that education, experience, farmers' group, landholding size, off-farm income, and risk perceptions of floods significantly affect the risk attitude of farmers. The study provides useful insights into the most important factors affecting the risk attitude of farmers. The results have implications for policy makers in providing farmers with accurate risk mitigating and management tools, such as agricultural credit and crop insurance, to cope with climatic risks.