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How Australian Farmers Deal With Risk

Author

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  • 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.

Suggested Citation

  • Amy Khuu & Ernst Juerg Weber, 2012. "How Australian Farmers Deal With Risk," Economics Discussion / Working Papers 12-07, The University of Western Australia, Department of Economics.
  • Handle: RePEc:uwa:wpaper:12-07
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