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A preliminary test on risk and ambiguity attitudes, and time preferences in decisions under uncertainty: towards a better explanation of participation in crop insurance schemes

Coletta, Attilio and Giampietri, Elisa and Santeramo, Fabio Gaetano and Severini, Simone and Trestini, Samuele (2018): A preliminary test on risk and ambiguity attitudes, and time preferences in decisions under uncertainty: towards a better explanation of participation in crop insurance schemes. Forthcoming in: Bio-Based and Applied Economics No. 3

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Abstract

The exposure of farmers to different (and increasing) risks has been recognized by the EU policy, which supports several risk management tools through the Common Agricultural Policy (CAP). Despite the vulnerability of the agricultural sector, and the attention paid at the EU level, the uptake of such tools is generally low across EU countries. The Italian case is emblematic: the uptake of subsidized crop insurance contracts is low, limited to few products, and concentrated in few areas. Coherently, the interest of policy makers toward explaining these characteristics and in gaining insights on the interventions that may help promoting participation is intense. This contribution investigates behavioral aspects linked to choices under risk and ambiguity, and account for time preferences in order to mimic the scenario faced by the potential adopters of the subsidized crop insurance contracts in Italy. Data are collected through questionnaires submitted to students from agricultural colleges in three administrative regions located in northern, central and southern Italy. Results show that attitude toward risk, ambiguity, and impatience are correlated with the intrinsic characteristics of respondents. In addition, some of those attitudes may help explaining decisions under uncertainty. Despite the empirical analysis is preliminary and focused on students, it allowed to validate a promising methodological approach capable of explaining farmer’s willingness to adopt (or renew) insurance contracts. By accounting for (currently under-investigated) behavioral aspects, it is likely to prove useful to re-design or implementing, more effectively, the current policies.

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