Risk behaviour

Have you ever thought about insurance against natural hazards such as floods and storms? - Most certainly, if you or people around you have been victims of such a disaster! But without your personal experience? With a view to politically relevant issues in agriculture, we investigate how farms deal with the risks they encounter. Using our research, we suggest options for actions by policymakers to promote effective risk management and reduce public costs.

For example, we ask ourselves: How much would farmers pay to insure themselves against climate risks that threaten their livelihoods, and how do they make their decision? And what role do emergency government aids play in this? How do farmers perceive policy uncertainty? And what is the importance of production risk in choosing appropriate production systems?

To evaluate policy interventions in agriculture, it is necessary to include how farmers respond to the risks and uncertainties they face. For this, it is helpful to look at decision-making processes, individual risk attitudes, and biases in risk perception and assessment.

One focus of our work is risk behaviour during weather-related extreme events. We explore what farmers would spend to insure themselves against substantial crop losses (e.g., caused by extreme drought, hail, or floods) and how to influence this willingness to pay. We investigate this in part by tracing farmers' decision-making processes and identifying commonly used decision rules. With the insights gained, we evaluate measures that are often discussed politically. e.g. in the area of crop insurance. In addition, government emergency aid often plays an important role in dealing with extreme events. In this context, we investigate how misaligned incentives due to government emergency aid influence agricultural risk provisioning and which measures can be used to circumvent misaligned incentives and minimize government costs.

We are guided by current insights from behavioural economics, a field of research that has received increasing attention in recent years, e.g., through several Nobel Prizes in the field of economics. Classical theories of economics often have only a very limited explanatory power here.

Risk behaviour is an important factor in other policy and research areas as well. For example, investments in new technology or novel animal husbandry systems are decisions that involve entrepreneurial risk. Policy goals such as reducing pesticide use or fertiliser rates also change the risk of crop failure. We strive to bring our expertise in risk behaviour research to bear on the analyses of these issues.