Authors
Ben Groom, Phoebe Koundouri, Celine Nauges, Alban Thomas
Publication date
2008/2/1
Journal
Applied Economics
Volume
40
Issue
3
Pages
315-326
Publisher
Routledge
Description
This article illustrates the importance of estimating risk preferences when evaluating water policy. Using agricultural production data from the Kiti region of Cyprus we estimate farmers’ risk preferences à la Antle (Journal of Business and Economic Statistics, 1, 192–201, 1983, American Journal of Agricultural Economics, 69, 509–22, 1987) and show sensitivity to higher order moments of profit, such as skewness. We show that farmers in the Kiti region are risk averse with risk premiums in the region of 20% of expected profit. We use these estimates to analyse the impact of a water quota from the perspective of three policy-makers who differ only in their understanding of farmers’ risk preferences. We show in the case of Kiti that policy-makers who model risk preferences incorrectly, that is, either; (a) assume risk neutrality or; (b) ignore down-side risk, wrongly predict the magnitude and direction of input responses and …
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Scholar articles
B Groom, P Koundouri, C Nauges, A Thomas - Applied Economics, 2008