TY - JOUR
T1 - Risk preferences of commodity crop producers and specialty crop producers
T2 - An application of prospect theory
AU - Zhao, Shuoli
AU - Yue, Chengyan
PY - 2020/5/1
Y1 - 2020/5/1
N2 - Producers’ decisions, such as crop insurance, contract agreement, and technology adoption, involve considerable risk and uncertainty. Particularly, specialty crop production is more vulnerable to risk and requires more intensive management than commodity crop production, while risk mitigation tools for specialty crop production are comparatively limited. We apply Prospect Theory (PT) to analyze risk preferences of U.S. producers, and further compare the preference differences between commodity crop and specialty crop producers. Reference dependent, diminishing sensitivity, loss aversion, and probability weighting, as well as certain farm characteristics and producer demographics, are found to have a significant impact on grower risk attitudes. In addition, we do not observe significant differences in the base PT estimates between commodity crop and specialty crop producers. However, the relationships between risk behavior and individual characteristics vary between the two types of producers, which shed lights on the development of agricultural policies and provide implications for the design of contract and insurance.
AB - Producers’ decisions, such as crop insurance, contract agreement, and technology adoption, involve considerable risk and uncertainty. Particularly, specialty crop production is more vulnerable to risk and requires more intensive management than commodity crop production, while risk mitigation tools for specialty crop production are comparatively limited. We apply Prospect Theory (PT) to analyze risk preferences of U.S. producers, and further compare the preference differences between commodity crop and specialty crop producers. Reference dependent, diminishing sensitivity, loss aversion, and probability weighting, as well as certain farm characteristics and producer demographics, are found to have a significant impact on grower risk attitudes. In addition, we do not observe significant differences in the base PT estimates between commodity crop and specialty crop producers. However, the relationships between risk behavior and individual characteristics vary between the two types of producers, which shed lights on the development of agricultural policies and provide implications for the design of contract and insurance.
KW - commodity crop
KW - crop insurance
KW - prospect theory
KW - specialty crop
UR - http://www.scopus.com/inward/record.url?scp=85081749855&partnerID=8YFLogxK
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U2 - 10.1111/agec.12559
DO - 10.1111/agec.12559
M3 - Article
AN - SCOPUS:85081749855
SN - 0169-5150
VL - 51
SP - 359
EP - 372
JO - Agricultural Economics (United Kingdom)
JF - Agricultural Economics (United Kingdom)
IS - 3
ER -