Authors:
Tensi, Annika, Ang, Frederic, Geraldes, Diogo, van der fels - klerx, ine
Abstract:
In this paper, we test whether arable crop farmers in times of COVID-19 are more inclined to adopt microbial applications after watching a nudging video on the potential positive effects of microbial applications. Extreme exogenous events, like natural disasters, increase the risk aversion of individuals that experienced them (Cameron & Shah, 2015; Cassar et al., 2017). The unprecedented COVID-19 outbreak in Europe in 2020, which at some point put all countries to different degrees on hold, is the most recent example of such an exogeneous d (...)
In this paper, we test whether arable crop farmers in times of COVID-19 are more inclined to adopt microbial applications after watching a nudging video on the potential positive effects of microbial applications. Extreme exogenous events, like natural disasters, increase the risk aversion of individuals that experienced them (Cameron & Shah, 2015; Cassar et al., 2017). The unprecedented COVID-19 outbreak in Europe in 2020, which at some point put all countries to different degrees on hold, is the most recent example of such an exogeneous drastic event. Further is it well-known that risk attitudes are an important determinant of agricultural production decisions as well as agricultural technology adoption decisions. In general, farmers are seen as utility maximisers, as described by the Von Neumann and Morgenstern (1947) theory. Yet, a growing body of literature suggests that deviations from the expected utility theory are quite common in agricultural technology adoption and production decisions (Bellemare et al., 2020; Brunette & Tevenart, 2019; Streletskaya et al., 2020). For instance, Bellemare et al. (2020) find that farmers’ behaviour is nonmonotonic when it comes to price risks. Bocquého et al. (2014) find that Tversky and Kahneman’s Prospect Theory (1992) describes farmers’ behaviour better than expected utility theory. Liu (2013) finds in her field experiment on Bt cotton adoption that risk attitude as well as probability weighting determines the timing of adoption: The more risk averse farmers adopt Bt cotton later, while the farmers that overweight small probabilities adopt the new variety earlier. Taken together, the findings on the relationship between extreme events and risk attitude, and risk attitudes and farmers’ behaviour, suggest that the COVID-19 outbreak may lead farmers to become more risk averse, potentially deterring them from making essential investments for future profitability. In this article, we investigate whether a nudge, in form of an informative video, can overcome exogenous risk attitudes and lead to better production decisions. While Liu (2013) investigated ex post how risk attitudes affect technological adoption decisions, we investigate ex ante the adoption of a novel technology. We use the risk preference parameters (utility function curvature) and parameters of the probability weighting function, as well as exposure to COVID-19 to model the uptake of microbial applications in arable farming. We use two lotteries to elicit the two parameters. The Holt and Laury (2002) protocol is used to elicit the parameters of the probability weighting function. We follow the adjustments by Drichoutis and Lusk (2016) to estimate the parameters of the utility function curvature. For parameter estimation, we use maximum likelihood estimation models (Harrison & Rutström, 2008).
(Read More)