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Risk preferences and voluntary agri-environmental schemes: does risk aversion explain the uptake of the Rural Environment Protection Scheme?

Vollenweider, Xavier, Di Falco, Salvatore and O’Donoghue, Cathal (2011) Risk preferences and voluntary agri-environmental schemes: does risk aversion explain the uptake of the Rural Environment Protection Scheme? Grantham Research Institute on Climate Change and the Environment working papers, 48. Grantham Research Institute on Climate Change and the Environment, London, UK.

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Abstract

The lowering of trade barriers under the successive reforms of the pillar I of the Common Agricultural Policy, the opening of the commodity markets to an ever greater number of financial actors and the uncertainty created by climate change, amplify both production risk and market risks for producers. This is particularly true for Irish dairy farmers, as they are export-oriented and their grass-based production system is closely linked to the cycle of seasons. The Rural Environment Protection Scheme (REPS), part of the agri-environmental policies of pillar II, offers to farmers an opportunity to stabilize their income over a five year period. We estimate risk preferences with the model of Antle (Antle, 1987) in order to analyse the impact of risk aversion (relative risk premium) on the probability of joining REPS. Our results support the hypothesis that REPS is used as a risk management tools. This sheds light on the interaction between the reforms of pillar I and the ones of pillar II: further increases in risk could increase the uptake of voluntary agri-environmental policies while the development of new risk management tools (revenue insurance, forward contracts, etc) could decrease it as they could both become substitutes.

Item Type: Monograph (Working Paper)
Official URL: http://www2.lse.ac.uk/GranthamInstitute/Home.aspx
Additional Information: © 2011 The Authors
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
S Agriculture > S Agriculture (General)
Journal of Economic Literature Classification System: Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q12 - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy
Sets: Departments > Geography and Environment
Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 48
Date Deposited: 26 Jul 2011 10:13
URL: http://eprints.lse.ac.uk/37585/

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