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Effective Risk Management Policy choices under Climate Change: An Application to Saskatchewan Crop Sector

Author

Listed:
  • Kimura, Shingo
  • Anton, Jesus
  • Cattaneo, Andrea

Abstract

There is growing concern about the impact of climate change on agriculture and the potential need for better risk management instruments that respond to a more risky environment. This is based on the widespread assumption that climate change will increase weather and yield variability and will expose farmers to higher levels of risk. But it is not obvious what will be the net impact of those on the distribution of yields and its correlation with weather indexes. Five stylized scenarios for crop yields are built on the basis of the available empirical information: baseline, marginal climate change without adaptation, with adaptation and with misalignment of expectations, and an extreme events scenario. A micro simulation model is calibrated using micro farm level data from the Canadian province of Saskatchewan. Four alternative policy measures are analyzed: three types of subsidized insurance (individual yield, area-yield and weather index) and an ex post disaster payment. Results on insurance uptake, budgetary costs and impacts on diversification, farmers’ welfare and farm income variability, are presented for three different types of farms. The paper goes beyond indentifying the effectiveness of risk management instruments under stylized climate change scenario and analyze the policy decision criteria when policy makers face ambiguous climate change contingencies.

Suggested Citation

  • Kimura, Shingo & Anton, Jesus & Cattaneo, Andrea, 2012. "Effective Risk Management Policy choices under Climate Change: An Application to Saskatchewan Crop Sector," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126736, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae12:126736
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    File URL: http://ageconsearch.umn.edu/record/126736/files/Kimura.pdf
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    References listed on IDEAS

    as
    1. Moschini, Giancarlo & Hennessy, David A., 2001. "Uncertainty, risk aversion, and risk management for agricultural producers," Handbook of Agricultural Economics,in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 2, pages 88-153 Elsevier.
    2. Barnett, Barry J. & Black, J. Roy & Hu, Yingyao & Skees, Jerry R., 2005. "Is Area Yield Insurance Competitive with Farm Yield Insurance?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 30(2), pages 1-17, August.
    3. Johanna Etner & Meglena Jeleva & Jean‐Marc Tallon, 2012. "Decision Theory Under Ambiguity," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 234-270, April.
    4. Benjamin Collier & Jerry Skees & Barry Barnett, 2009. "Weather Index Insurance and Climate Change: Opportunities and Challenges in Lower Income Countries," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 34(3), pages 401-424, July.
    5. Shingo Kimura & Jesús Antón & Christine LeThi, 2010. "Farm Level Analysis of Risk and Risk Management Strategies and Policies: Cross Country Analysis," OECD Food, Agriculture and Fisheries Papers 26, OECD Publishing.
    6. Jesús Antón & Shingo Kimura & Roger Martini, 2011. "Risk Management in Agriculture in Canada," OECD Food, Agriculture and Fisheries Papers 40, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Crop Production/Industries; Environmental Economics and Policy; Risk and Uncertainty;

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