Experimental Evidence of Risk Attitude of Farmers from Risk-Preference Elicitation in India

Abstract

Covariate production risks are some of the central features of the agriculture sector especially in developing countries that merit further economic research. Risk attitudes of the farmers play a crucial role in designing and targeting mechanisms to mitigate risks. As a part of our larger research project towards developing a comprehensive crop insurance product, we conduct risk preferences elicitation experiment with rice-growing farmers in eastern India. The experiment is relatively unique in that it introduces a minimum entry fee which help in eliciting risk preferences that are close to their behaviour in real decision makings. Using zero-inflated ordered probit mode, we analysed the experimental data. The results show that small and marginal farmers tend to opt for options associated with high risk aversion. As majority of the farmers in the sampled states have small and marginal landholdings, in general farmers tend to be risk averse. In addition, compared to young farmers, elder farmers are found to be more risk averse. Education and household size of respondents have also positive effect on riskier options and negative effect on risk averse options. Farmers who belong to minority caste/social class (SC and ST) are more likely to opt the risk aversion strategy. Acknowledgement :