As farmers adjust to the evolving climate, they alter their farming practices and technologies to manage the risks associated with changing crop yields. These adjustments can range from minor changes like tweaking crop insurance coverage to major investments such as adopting irrigation systems. Their responses are influenced by their risk preferences and perceptions of how climate change will affect the risks they face. Additionally, government incentives can play a role in shaping these behavioral responses. This research contributes to the existing body of knowledge by delving into the drivers of farmer decisions in the context of climate change.The first chapter of this dissertation empirically estimates the risk aversion of 44 corn-soybean farmers in Michigan under different utility function assumptions. We then compare risk aversion across these utility functions and between general lottery choices and choices related to agricultural investments that can mitigate weather risk. We compare the fit of three utility models—constant absolute risk aversion (CARA), constant relative risk aversion (CRRA), and nonconstant risk preferences—and chose the CRRA model as the most suitable for our application. We estimate risk preferences at both the sample- and individual-level, to compare drivers of risk aversion in each lottery setting. While the sample-level estimates of CRRA are similar across lottery settings, individual-level comparisons reveal greater variability in risk preferences within the agricultural lottery setting. In the general lottery, participants' age significantly influences risk preferences, whereas wealth (measured by acres in operation) significantly impacts risk preferences in both lottery settings. Simply measuring farmers' risk preferences without considering contextual factors fails to capture the diversity in preferences and the factors driving this heterogeneity.The second chapter of this dissertation explores the connection between farmers' risk preferences, perceptions of crop yields, and decisions regarding climate change adaptation. Drawing on the same 44 interviews, we construct perceived crop yield distributions under investment scenarios for tile drainage, center pivot irrigation, and drought tolerant seeds to identify the perceived efficacy of these practices. We uncover that farmers foresee shifts in future crop yield distributions, anticipating rising means with greater variances. Individuals who perceive a larger increase in expected crop yield from irrigation adoption are more likely to be currently using center pivot irrigation or be considering adopting irrigation. Meanwhile, participants who believe that tile drainage will increase their crop yield variance are less likely to adopt drainage. Assessing risk preferences and subjective crop yield distributions across different technology scenarios enables us to identify the key factors influencing adaptation adoption decisions.This dissertation's third and last part explores how the U.S. Department of Agriculture Natural Resource Conservation Service (NRCS) cost-share programs encourage the adoption of cover crops across the Midwest. Cover crops provide both public ecological benefits, such as improving air and water quality, and private benefits to farmers, such as improved soil health and reduced soil erosion. Analyzing NRCS cover crop contract county level data, we find that an increase in the cost-share proportion translates to an increase in enrolled acres, which provides evidence of additionality. Results also indicate that the basic single species cover crop contract is the most popular, and higher adoption rates correlate with lower precipitation levels in the preceding growing season. Using remote sensing data, we test the relationships between enrolled cover crop acreage and conservation tillage practices. We do not find positive learning and peer effects from previous enrollment in cover crop contracts, but we do see a positive relationship between cover crop and no-tillage acreage. These findings deepen our understanding of the drivers behind cover crop adoption and shed light on the effectiveness of government incentives in promoting sustainable agricultural practices.
Read
