Farmer risk preferences: Does context matter?

Abstract

As farmers adapt to changing climate, they modify practices to manage evolving production risk. Understanding farmers' risk attitudes is critical to predicting their decisions about climate change adaptation. This research empirically estimates utility functions to measure the risk preferences of Michigan corn-soybean farmers. We elicit choices between paired lotteries in both a general and an agricultural domain. We find that farmers are risk-averse across domains. However, farmer risk preferences are more heterogeneous in the agricultural domain than in the general one. These results are robust across specifications of utility functions, individual versus aggregate estimates, and types of risky outcomes.