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Risk aversion in agricultural water management investments in Northern Ghana: Experimental evidence

Risk aversion in agricultural water management investments in Northern Ghana: Experimental evidence

Katic, Pamela ORCID: 0000-0001-7594-1081 and Ellis, Tim (2018) Risk aversion in agricultural water management investments in Northern Ghana: Experimental evidence. Agricultural Economics, 49 (5). pp. 575-586. ISSN 0169-5150 (Print), 1574-0862 (Online) (doi:https://doi.org/10.1111/agec.12443)

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Abstract

Sub-Saharan Africa (SSA) is one of the regions in the world most affected by food price volatility and production variability. Poor small-scale farmers in this region are particularly vulnerable to this variability. As a result, households may be reluctant to adopt new agricultural water management (AWM) technologies when they involve more risk than what they mitigate.

Despite risk’s role in agricultural water management investments, there have been few attempts to estimate the magnitude and nature of risk aversion in relation to this type of farm decisions. To partially close this gap, this paper uses an experimental approach applied to 137 households in Northern Ghana. We find that more than 70 percent of households are moderately or slightly risk averse. This contrasts with other studies in SSA, where most household decision-makers exhibit severe to extreme risk aversion.

We also find that households that stand to lose as well as gain something from participation in games are less risk averse than households playing gains-only games. This result suggests that most farmers’ current wealth put them at risk of falling into a poverty trap. Thus, the losses from the riskiest investments on AWM technologies may fall more heavily on the poor, suggesting that additional efforts be given to the creation of viable insurance mechanisms.

Item Type: Article
Uncontrolled Keywords: risk, ghana, agricultural water
Subjects: S Agriculture > S Agriculture (General)
Faculty / Department / Research Group: Faculty of Engineering & Science
Faculty of Engineering & Science > Natural Resources Institute
Faculty of Engineering & Science > Natural Resources Institute > Livelihoods & Institutions Department
Last Modified: 16 May 2019 15:59
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: GREAT e
Selected for GREAT 2019: GREAT 2
URI: http://gala.gre.ac.uk/id/eprint/20017

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