IDEAS home Printed from https://ideas.repec.org/p/ags/eaae11/115989.html
   My bibliography  Save this paper

Natural Disasters and Agriculture: Individual Risk Preference towards Flooding

Author

Listed:
  • Sauer, Johannes

Abstract

This study contributes to the understanding of behavioural responses to climate change induced extreme weather events. It suggest a microeconometric method for measuring flooding related risk preferences of affected individuals. The method is outlined using the empirical case of agricultural production in floodplains of the UK over 28 years. A quasi-experimental approach to measure differences in the risk attitudes of farmers located in high flooding risk areas versus farmers located in low flooding risk areas is followed. Changes in flooding risk related behaviour over time is analysed and marginal effects of different individual and disaster related characteristics for this behaviour are investigated. Beside a moments based risk estimation approach the study also applies a dynamic panel estimator. The estimates suggest that the average farmer located in a high flooding risk area is prepared to pay about 6% more of his profit for insuring against the higher risk of flooding compared to farmers in low flooding risk areas. The significance of considering individual risk preferences for an efficient flood policy design is discussed using the example of voluntary agreements for the maintainance of flood defences.

Suggested Citation

  • Sauer, Johannes, 2011. "Natural Disasters and Agriculture: Individual Risk Preference towards Flooding," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 115989, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaae11:115989
    as

    Download full text from publisher

    File URL: http://purl.umn.edu/115989
    Download Restriction: no

    References listed on IDEAS

    as
    1. Barry K. Goodwin, 2008. "Climate Variability Implications for Agricultural Crop Production and Risk Management: Discussion," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(5), pages 1263-1264.
    2. Hallegatte, Stéphane & Dumas, Patrice, 2009. "Can natural disasters have positive consequences? Investigating the role of embodied technical change," Ecological Economics, Elsevier, vol. 68(3), pages 777-786, January.
    3. Ben Groom & Phoebe Koundouri & Celine Nauges & Alban Thomas, 2008. "The story of the moment: risk averse cypriot farmers respond to drought management," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 315-326.
    4. Kenneth I. Wolpin & Mark R. Rosenzweig, 2000. "Natural "Natural Experiments" in Economics," Journal of Economic Literature, American Economic Association, vol. 38(4), pages 827-874, December.
    5. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    6. Kim, Kwansoo & Chavas, Jean-Paul, 2003. "Technological change and risk management: an application to the economics of corn production," Agricultural Economics, Blackwell, vol. 29(2), pages 125-142, October.
    7. Kunreuther, Howard & Sanderson, Warren & Vetschera, Rudolf, 1985. "A behavioral model of the adoption of protective activities," Journal of Economic Behavior & Organization, Elsevier, vol. 6(1), pages 1-15, March.
    8. Albala-Bertrand, J. M., 1993. "Natural disaster situations and growth: A macroeconomic model for sudden disaster impacts," World Development, Elsevier, vol. 21(9), pages 1417-1434, September.
    9. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    10. Jean-Paul Chavas & Robert G. Chambers & Rulon D. Pope, 2010. "Production Economics and Farm Management: a Century of Contributions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(2), pages 356-375.
    11. Kenyon, Wendy, 2007. "Evaluating flood risk management options in Scotland: A participant-led multi-criteria approach," Ecological Economics, Elsevier, vol. 64(1), pages 70-81, October.
    12. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-877, October.
    13. Olivier Deschênes & Michael Greenstone, 2007. "The Economic Impacts of Climate Change: Evidence from Agricultural Output and Random Fluctuations in Weather," American Economic Review, American Economic Association, vol. 97(1), pages 354-385, March.
    14. Subal C. Kumbhakar, 2002. "Specification and Estimation of Production Risk, Risk Preferences and Technical Efficiency," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 8-22.
    15. Biorn, Erik, 2004. "Regression systems for unbalanced panel data: a stepwise maximum likelihood procedure," Journal of Econometrics, Elsevier, vol. 122(2), pages 281-291, October.
    16. Antle, John M, 1983. "Testing the Stochastic Structure of Production: A Flexible Moment-based Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(3), pages 192-201, July.
    17. Greenstone, Michael & Gayer, Ted, 2009. "Quasi-experimental and experimental approaches to environmental economics," Journal of Environmental Economics and Management, Elsevier, vol. 57(1), pages 21-44, January.
    18. Banerjee, Lopamudra, 2007. "Effect of Flood on Agricultural Wages in Bangladesh: An Empirical Analysis," World Development, Elsevier, vol. 35(11), pages 1989-2009, November.
    19. V. Smith & Jared Carbone & Jaren Pope & Daniel Hallstrom & Michael Darden, 2006. "Adjusting to natural disasters," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 37-54, September.
    20. Jared Carbone & Daniel Hallstrom & V. Smith, 2006. "Can Natural Experiments Measure Behavioral Responses to Environmental Risks?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(3), pages 273-297, March.
    21. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    22. Howard D. Leathers & John C. Quiggin, 1991. "Interactions between Agricultural and Resource Policy: The Importance of Attitudes toward Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 757-764.
    23. Jonkman, S.N. & Bockarjova, M. & Kok, M. & Bernardini, P., 2008. "Integrated hydrodynamic and economic modelling of flood damage in the Netherlands," Ecological Economics, Elsevier, vol. 66(1), pages 77-90, May.
    24. Bowsher, Clive G., 2002. "On testing overidentifying restrictions in dynamic panel data models," Economics Letters, Elsevier, vol. 77(2), pages 211-220, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ayenew, Habtamu Yesigat & Sauer, Johannes & Abate-Kassa, Getachew, 2015. "Expossure To Risk And Risk Management In Smallholder Agriculture," 55th Annual Conference, Giessen, Germany, September 23-25, 2015 209211, German Association of Agricultural Economists (GEWISOLA).

    More about this item

    Keywords

    Extreme Events; Risk; Agriculture; Natural Experiments; Behavioural Adaptation; Resource /Energy Economics and Policy; Risk and Uncertainty;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:eaae11:115989. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search). General contact details of provider: http://edirc.repec.org/data/eaaeeea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.