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How Australian Farmers Deal With Risk

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Author Info

  • Amy Khuu

    (Business School, University of Western Australia)

  • Ernst Juerg Weber

    (Business School, University of Western Australia)

Abstract

Farm survey data show that the risk aversion of West Australian farmers is comparable to that of other asset holders. An increase in the variability of crop yield by 20%, which may be caused by future climate change, would raise their willingness to pay for crop insurance almost one-to-one by 19%. West Australian farmers can insure against hail, fire and some other perils but not against the greatest risk – drought. The farm survey indicates that adverse selection does not arise in the existing market for crop insurance because insurance premiums reflect the risk of crop failure. However, a future supplier of drought insurance must take into consideration that drought insurance might give rise to moral hazard, changing the risk management practices of farmers.

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Bibliographic Info

Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 12-07.

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Length: 45 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:uwa:wpaper:12-07

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