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Risk preferences and voluntary agrienvironmental schemes: does risk aversion explain the uptake of the Rural Environment Protection Scheme?

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  • Xavier Vollenweider
  • Salvatore Di Falco
  • Cathal O’Donoghue

Abstract

The lowering of trade barriers under the successive reforms of the pillar I of the Common Agricultural Policy, the opening of the commodity markets to an ever greater number of financial actors and the uncertainty created by climate change, amplify both production risk and market risks for producers. This is particularly true for Irish dairy farmers, as they are export-oriented and their grass-based production system is closely linked to the cycle of seasons. The Rural Environment Protection Scheme (REPS), part of the agri-environmental policies of pillar II, offers to farmers an opportunity to stabilize their income over a five year period. We estimate risk preferences with the model of Antle (Antle, 1987) in order to analyse the impact of risk aversion (relative risk premium) on the probability of joining REPS. Our results support the hypothesis that REPS is used as a risk management tools. This sheds light on the interaction between the reforms of pillar I and the ones of pillar II: further increases in risk could increase the uptake of voluntary agri-environmental policies while the development of new risk management tools (revenue insurance, forward contracts, etc) could decrease it as they could both become substitutes.

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Bibliographic Info

Paper provided by Grantham Research Institute on Climate Change and the Environment in its series Grantham Research Institute on Climate Change and the Environment Working Papers with number 48.

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Date of creation: May 2011
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Handle: RePEc:lsg:lsgwps:wp48

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Cited by:
  1. Elie Appelbaum & Aman Ullah, 1997. "Estimation Of Moments And Production Decisions Under Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 631-637, November.
  2. Drichoutis, Andreas C. & Koundouri, Phoebe, 2012. "Estimating risk attitudes in conventional and artefactual lab experiments: The importance of the underlying assumptions," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(38), pages 1-15.

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