Do risk preferences really matter? the case of pesticide use in agriculture

Christophe Bontemps, Douadia Bougherara and Céline Nauges
Additional contact information
Céline Nauges: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

Working Papers from HAL

Abstract: Even if there exists an extensive literature on the modeling of farmers' behavior under risk, actual measurements of the quantitative impact of risk aversion on input use are rare. In this article, we use simulations to quantify the impact of risk aversion on the optimal quantity of input and farmers' welfare when production risk depends on how much of the input is used. The assumptions made on the technology and form of farmers' risk preferences were chosen such that they are fairly representative of crop farming conditions in the USA and Western Europe. In our benchmark scenario featuring a traditional expected utility model, we find that less than 4% of the optimal pesticide expenditure is driven by risk aversion and that risk induces a decrease in welfare that varies from −1.5 to −3.0% for individuals with moderate to normal risk aversion. We find a stronger impact of risk aversion on quantities of input used when farmers' risk preferences are modeled under the cumulative prospect theory framework. When the reference point is set at the median or maximum profit, and for some levels of the parameters that describe behavior toward losses, the quantity of input used that is driven by risk preferences represents up to 19% of the pesticide expenditure.

Keywords: Pesticides; Production risk; Risk preferences (search for similar items in EconPapers)
Date: 2025-02-28
Note: View the original document on HAL open archive server: https://hal.science/hal-04971995v1
References: Add references at CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-04971995v1/document (application/pdf)

Related works:
Working Paper: Do risk preferences really matter? the case of pesticide use in agriculture (2021)
Working Paper: Do Risk Preferences Really Matter? The Case of Pesticide Use in Agriculture (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04971995

DOI: 10.1007/s10666-021-09756-8

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().