Shock, risk attitude and rice farming: Evidence from panel data for Thailand

Abstract

Rice is one of the most important crops for food security and rural livelihoods in many developing countries in Asia. However, the current rice farming practices heavily rely on synthetic fertilizers and pesticides that pose a significant threat to the environment. Further, the overuse of inputs might lead to the wastage of resources. Therefore, this research examines the impact of shocks experienced by farmers on their risk attitude, input use, and technical efficiency in rice farming. We use a balanced panel dataset of 1220 rice households from Thailand collected in 2013 and 2017 and employ a fixed-effects estimation with instrumental variables to account for endogeneity concerns. Our results show that fertilizers and pesticides are risk-decreasing inputs, which means rice farmers, who are more unwilling to take risks, tend to apply more fertilizers and pesticides. Adverse shocks affect rural households’ risk attitudes, leading to over applications of fertilizers and pesticides and, therefore, reducing farming efficiency. We suggest that policies providing crop insurance and enhancing farmers’ awareness on proper input application are critical to mitigate the adverse impacts of shocks and reduce the inefficient use of these chemical inputs.