KBS159:Managing Crop Yield Risk

As farmers adapt to changing climate, they modify practices and technologies to manage evolving risk. Adaptive changes may be as small as adjusting a crop insurance coverage level or as large as investing in an irrigation system. Farmer attitudes toward risk and their subjective perceptions of the evolving probability distributions of crop yields drive adaptation decisions.
To understand climate change adaptation behavior by farmers, we undertook the study “Elicitation and Estimation of Risk Preference and Subjective Probabilities to Understand Farmer Decisions on Climate Change Adaptation.” We interviewed 44 Michigan corn and soybean farmers to elicit mathematical expressions of their risk attitudes. During the interviews, each completed two sets of lottery choices, the first using 25 general risky gambles and the second using 18 risky gambles in a crop farming context that enable econometric estimation of risk attitudes (using variants of Expected Utility Theory). Next, they answered questions about corn yield probability distributions over the past ten years and the next ten years (triangular distributions of minimum, most likely, and maximum values) with no water management, irrigation, tile drainage, and drought-resistant seed. After that, they reported on water management investments that they have made in past and intend to make in future. Finally, they provided background information about themselves and their farms.
This study (MSU Study ID: STUDY00007871) was submitted to the Michigan State University Institutional Review Board (IRB) by principal investigator Scott Swinton. On July 5, 2022, it was determined to be exempt under 45 CFR 46.104(d) 3(i)(B). Data collection took place during September 2022 through March 2023. Farmer respondents completed the survey instrument on Qualtrics with assistance from graduate students in Agricultural, Food, and Resource Economics at Michigan State University at various MSU Extension offices and restaurants around southern Michigan. Respondents received lunch plus $50 for participating and a credit of $40 that could be gained or lost based on the outcome from one of the risky gambles (included to encourage truthful responses [“incentive compatibility”]).