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Natural Disasters and Agriculture: Individual Risk Preferences towards Flooding

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  • Sauer, Johannes
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    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. Die folgende Studie untersucht individuelle Verhaltensänderungen im Hinblick auf Klima induzierte extreme Wetterereignisse. Es wird eine mikroökonometrische Methode zur Messung Flutungsbedingter Risikopräferenzen vorgeschlagen. Die Methode wird exemplarisch am Fall landwirtschaftlicher Produktion in England für einen Zeitraum von 28 Jahren aufgezeigt. Es wird ein quasi-experimenteller Ansatz verfolgt um Unterschiede in den Risikopräferenzen von Landwirten in Gebieten mit geringem Flutungsrisiko und solchen in Gebieten mit hohem Flutungsrisiko zu untersuchen. Änderungen in Flutungsrisiko bezogenem Verhalten im Zeitablauf sowie die marginalen Effekte verschiedener Charakteristiken und Faktoren werden beleuchtet. Neben einem ‚moments based‘ Schätzansatz wird ebenso ein dynamischer Panel Schätzer verwandt.

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    File URL: http://purl.umn.edu/114497
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    Paper provided by German Association of Agricultural Economists (GEWISOLA) in its series 51st Annual Conference, Halle, Germany, September 28-30, 2011 with number 114497.

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    Date of creation: 2011
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    Handle: RePEc:ags:gewi11:114497
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    Keywords: Extreme Events; Risk; Agriculture; Natural Experiments; Behavioural Adaptation; Extreme Ereignisse; Risiko; Landwirtschaft; Natürliche Experimente; Verhaltensadaption; Agribusiness; Agricultural and Food Policy; Q12; C54;

    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
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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    1. 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.
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    Cited by:

    1. Ayenew, Habtamu Yesigat & Sauer, Johannes & Abate-Kassa, Getachew, 2015. "On Smallholder Farmers' Exposure to Risk and Adaptation Mechanisms: Panel Data Evidence from Ethiopia," 89th Annual Conference, April 13-15, 2015, Warwick University, Coventry, UK 204223, Agricultural Economics Society.

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