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Probability Weighting and Input Use Intensity in a State-Contingent Framework

Author

Listed:
  • Holden , Stein T.

    () (Centre for Land Tenure Studies, Norwegian University of Life Sciences)

  • Quiggin, John

    (School of Economics, University of Queensland)

Abstract

Climate risk represents an increasing threat to poor and vulnerable farmers in drought-prone areas of Africa. This study assesses the fertilizer adoption responses of food insecure farmers in Malawi, where Drought Tolerant (DT) maize was recently introduced. A field experiment, eliciting risk attitudes of farmers, is combined with a detailed farm household survey. A state-contingent production model with rank-dependent utility preferences is estimated. Over-weighting of small probabilities was associated with less use of fertilizer on all maize types and particularly so on the more risky improved maize types.

Suggested Citation

  • Holden , Stein T. & Quiggin, John, 2017. "Probability Weighting and Input Use Intensity in a State-Contingent Framework," CLTS Working Papers 8/17, Norwegian University of Life Sciences, Centre for Land Tenure Studies, revised 21 Oct 2019.
  • Handle: RePEc:hhs:nlsclt:2017_008
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    File URL: https://www.nmbu.no/download/file/fid/40495
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    References listed on IDEAS

    as
    1. Stein T. Holden & Rodney W. Lunduka, 2014. "Input Subsidies, Cash Constraints, and Timing of Input Supply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(1), pages 290-307.
    2. Chateauneuf, Alain & Cohen, Michele & Meilijson, Isaac, 2004. "Four notions of mean-preserving increase in risk, risk attitudes and applications to the rank-dependent expected utility model," Journal of Mathematical Economics, Elsevier, vol. 40(5), pages 547-571, August.
    3. George Wu & Richard Gonzalez, 1999. "Nonlinear Decision Weights in Choice Under Uncertainty," Management Science, INFORMS, vol. 45(1), pages 74-85, January.
    4. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    5. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    6. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-571, March.
    7. Bontems, Philippe & Thomas, Alban, 2006. "AJAE Appendix: Regulating Nitrogen Pollution with Risk-Averse Farmers under Hidden Information and Moral Hazard," American Journal of Agricultural Economics APPENDICES, Agricultural and Applied Economics Association, vol. 88(1), pages 1-6, February.
    8. Quiggin, John C. & Horowitz, John K., 2003. "Costs of adjustment to climate change," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(4), pages 1-18.
    9. Mahmud Yesuf & Randall A. Bluffstone, 2009. "Poverty, Risk Aversion, and Path Dependence in Low-Income Countries: Experimental Evidence from Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 1022-1037.
    10. Quiggin, John, 1991. "Comparative Statics for Rank-Dependent Expected Utility Theory," Journal of Risk and Uncertainty, Springer, vol. 4(4), pages 339-350, December.
    11. Philippe Bontems & Alban Thomas, 2006. "Regulating Nitrogen Pollution with Risk Averse Farmers under Hidden Information and Moral Hazard," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 57-72.
    12. Chambers,Robert G. & Quiggin,John, 2000. "Uncertainty, Production, Choice, and Agency," Cambridge Books, Cambridge University Press, number 9780521785235, April.
    13. Thomas, Alban & Bontems, Philippe, 1998. "Information Value And Risk Premium In Agricultural Production Under Risk: The Case Of Split Nitrogen Application For Corn," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20844, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    14. Philippe Bontems & Alban Thomas, 2000. "Information Value and Risk Premium in Agricultural Production: The Case of Split Nitrogen Application for Corn," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(1), pages 59-70.
    15. Holden , Stein, 2014. "Risky Choices of Poor People: Comparing Risk Preference Elicitation Approaches in Field Experiments," CLTS Working Papers 10/14, Norwegian University of Life Sciences, Centre for Land Tenure Studies, revised 10 Oct 2019.
    16. Quang Nguyen & Colin Camerer & Tomomi Tanaka, 2010. "Risk and Time Preferences Linking Experimental and Household Data from Vietnam," Post-Print halshs-00547090, HAL.
    17. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    18. 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.
    19. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    20. Holden , Stein & Fischer, Monica, 2015. "Can Adoption of Improved Maize Varieties Help Smallholder Farmers Adapt to Drought? Evidence from Malawi," CLTS Working Papers 1/15, Norwegian University of Life Sciences, Centre for Land Tenure Studies, revised 11 Oct 2019.
    21. Liu, Elaine M. & Huang, JiKun, 2013. "Risk preferences and pesticide use by cotton farmers in China," Journal of Development Economics, Elsevier, vol. 103(C), pages 202-215.
    22. William J. Burke, 2009. "Fitting and interpreting Cragg's tobit alternative using Stata," Stata Journal, StataCorp LP, vol. 9(4), pages 584-592, December.
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    Cited by:

    1. Holden , Stein T., 2018. "Fertilizer and Sustainable Intensification in Africa," CLTS Working Papers 1/18, Norwegian University of Life Sciences, Centre for Land Tenure Studies, revised 16 Oct 2019.

    More about this item

    Keywords

    Climate risk; state-contingent production; subjective probability weighting; technology adoption; adaptation; maize; Drought Tolerant maize; fertilizer use;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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