Risk Belief, Producer Demand, and Valuation of Improved Irrigations: Results from Field Experiments in Mt. Kilimanjaro
AbstractThis paper systematically estimates the potential benefit of introducing improved irrigation schemes in Mt. Kilimanjaro to help rain dependent farmers cope with the risks of climate change. The study uses Contingent Valuation Method (CVM) to elicit farmers’ Willingness to Pay (WTP) for eliminating the risks of crop loss by accessing improved irrigation schemes. Data for the analysis were gathered using a double bounded survey from over 200 randomly-sampled farmers in 15 villages. The study makes a contribution to the applied welfare literature and should also be useful for policymakers in Africa. The policy contribution consists of valuation of improved irrigation in the presence of climate change risks. The applied welfare contribution consists of empirical evidence about the impact of farmer’s risk aversion on welfare valuation. Pratt and Zeckhauser (1996) argue on conceptual grounds that in the absence of complete contingent claims market, individual WTP per unit of risk reduction will depend significantly on the level of risk and the magnitude of reduction that is offered. The present study captures individual farmer’s risk exposure by constructing an index for farmers’ expected rainfall. Since mean WTP is nonlinear in its parameters, mean WTP is computed based on the Krinsky and Robb (1986) method, which simulates the confidence interval and the achieved significance levels (ASL) for testing the null hypothesis that WTP≤0. The results show that farmers with lower expectations about future rainfall are willing to pay more for accessing the improved irrigation scheme. In addition, Mt. Kilimanjaro farmers are willing to pay up to 10% of their income to have access to improved irrigation canals. Assuming a 5% discount rate, the study found that farmers will reimburse the cost of building the irrigation scheme after 7 to 9 years.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado with number 61653.
Date of creation: Apr 2010
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Willingness to Pay; Climate Change; Irrigation; Risk Belief; Agricultural and Food Policy; Environmental Economics and Policy; Food Security and Poverty; International Development; Q12; Q18; Q25; Q51; Q56;
Find related papers by JEL classification:
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
- Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
- Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pratt, John W & Zeckhauser, Richard J, 1996. "Willingness to Pay and the Distribution of Risk and Wealth," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 747-63, August.
- Konishi, Yoshifumi & Coggins, Jay S., 2008. "Environmental risk and welfare valuation under imperfect information," Resource and Energy Economics, Elsevier, vol. 30(2), pages 150-169, May.
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