TY - JOUR
T1 - Risk Preferences and Environmental Uncertainty
T2 - Implications for Crop Diversification Decisions in Ethiopia
AU - Bezabih, Mintewab
AU - Sarr, Mare
N1 - Funding Information:
The authors gratefully acknowledge comments from participants at the Fourth Annual Meeting of the Environment for Development Initiative (Kuriftu, Ethiopia), the Fourth World Congress of Environmental and Resource Economists (Montreal, Canada) and the United States Society for Ecological Economics 2011 Conference (Michigan). We would like to thank the two anonymous referees who provided valuable comments as well as the Environmental Economics Policy Forum for Ethiopia for access to the survey data and the Ethiopian Meteorological Authority for access to the rainfall data. We would also like to thank Kerri Brick and Richard Morgan for editorial comments. Finally, we gratefully acknowledge financial support from Economic Research Southern Africa (ERSA).
PY - 2012/12
Y1 - 2012/12
N2 - To the extent that diversifying income portfolio is used as a strategy for shielding against production risk, both individual risk aversion and weather uncertainty could affect crop diversification decisions. This paper is concerned with empirically assessing the effects of risk aversion and rainfall variability on farm level diversity. Unique panel data from Ethiopia consisting of experimentally generated risk aversion measures combined with rainfall data are employed in the analysis. The major contribution of this study is its explicit treatment of individual risk preferences in the decision to diversify, simultaneously controlling for environmental risk in the form of rainfall variability. Covariate shocks from rainfall variability are found to positively contribute to an increased level of diversity with individual risk aversion having a positive but less significant role. We find that rainfall variability in spring has a greater effect than rainfall variability summer-the major rainy season. This finding is in line with similar agronomic-meteorological studies. These results imply that in situ biodiversity conservation could be effective in areas with high rainfall variability. However, reduction in risk aversion, which is associated with poverty reduction, is likely to reduce in situ conservation.
AB - To the extent that diversifying income portfolio is used as a strategy for shielding against production risk, both individual risk aversion and weather uncertainty could affect crop diversification decisions. This paper is concerned with empirically assessing the effects of risk aversion and rainfall variability on farm level diversity. Unique panel data from Ethiopia consisting of experimentally generated risk aversion measures combined with rainfall data are employed in the analysis. The major contribution of this study is its explicit treatment of individual risk preferences in the decision to diversify, simultaneously controlling for environmental risk in the form of rainfall variability. Covariate shocks from rainfall variability are found to positively contribute to an increased level of diversity with individual risk aversion having a positive but less significant role. We find that rainfall variability in spring has a greater effect than rainfall variability summer-the major rainy season. This finding is in line with similar agronomic-meteorological studies. These results imply that in situ biodiversity conservation could be effective in areas with high rainfall variability. However, reduction in risk aversion, which is associated with poverty reduction, is likely to reduce in situ conservation.
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U2 - 10.1007/s10640-012-9573-3
DO - 10.1007/s10640-012-9573-3
M3 - Article
AN - SCOPUS:84870789590
SN - 0924-6460
VL - 53
SP - 483
EP - 505
JO - Environmental and Resource Economics
JF - Environmental and Resource Economics
IS - 4
ER -
