|Agriculture is a major economic activity expected to increase its production by 50% to feed a planet of 9 billion people by 2050. The agricultural sector will continue to face many challenges to meet this increasing demand for food, from its vulnerability to scarce water availability and supply to extreme daytime temperatures (~30°C) and extreme climate events (e.g., heavy rainfalls). Agriculture must adapt to climate change to continue providing ecosystem services on which many communities depend. Adaptation is a continuous process of adjustments to known and projected changes in climate and the externalities due to these changes. Farmers play a central role in the adaptation process as they decide on changes in agricultural practices and management styles, among other things. These changes might lead to better outcomes, but for many farmers, there are significant challenges to implementation due to uncertainty and changes in environmental conditions and market prices, difficulties in managing risk, and the increasing competition for land, water, and energy.
Farmers’ adaptation patterns can be better understood if we study how farmers react to different levels of risk under measurable uncertainty. Risk preferences are an important factor in a farmer’s selection of adaptation options (e.g., technologies and innovative activities). Nonetheless, theoretical, and empirical studies have shown that conventional measures of risk preferences do not fully describe decision behavior. Social capital also plays a significant role in the process of risk management adaptation, particularly through farmers’ networks that facilitate the exchange of information and enrich the learning process when adopting new technologies. Generally, it can be said that, given high levels of trust in institutions, the higher the social capital, the less vulnerable farmers are. With this and other factors in mind, adaptation in the agricultural sector should be addressed more coherently. Appropriate policies intended to stimulate efficient transformation should not exclusively rely on the assumption of the rational farmer but take advantage of findings from behavioral economics. This dissertation joins the debate on behavioral economics in climate change adaptation by using survey data and behavioral experiments to understand farmers’ adaptation decisions and the effect of these decisions on technical efficiency.
The first paper explores how small farmers’ risk preferences and the three forms of social capital: trust, norms, and networking, affect the decision to implement anticipatory (ex-ante) or reactive (ex-post) adaptation options to climate change. Concretely, this paper applies Cumulative Prospect Theory to determine risk aversion, loss aversion, and the probability weighting function to understand risk preferences beyond risk aversion. We identified four anticipatory and four reactive adaptation options. The risk preferences parameters indicate that vineyard farmers are risk-averse and twice and a half more sensitive to losses than gains and overestimate small probabilities. The main drivers for adaptation are loss aversion, probability weighting, trust, the social norm of conservation, network, frequency of extension services, and shocks.
Our second paper focuses on the effect of adaptation options to climate change (anticipatory or reactive), risk preferences (risk aversion, loss aversion, and probability weighting), and social capital forms (trust, network, and social norms) on technical efficiency. To estimate technical efficiency, we first estimate the production function through a Cobb-Douglas function identifying that capital, the number of vines per main variety, labor, and agrochemicals are the most important inputs. Our sample has a mean technical efficiency index of 0.73, indicating that farms could improve their performance by 27%. We find that from the four anticipatory measures, only irrigation and management significantly affect efficiency. Irrigation contributes positively, while management decreases efficiency. Farmers in our sample overweight small probabilities; therefore, they tend to overuse cultural practices in stages during the unnecessary production process. Overall, we find that adopting reactive adaptation options does not significantly affect technical efficiency, which could be explained by the timing of implementation. Reactive anticipatory measures are implemented after a shock. Therefore, even though they could positively increase the efficiency level, the loss due to the climate-related shock reduces the contribution of the reactive adaptation option. Another key finding regarding social capital is the positive effect of general trust and membership on efficiency. Grape farmers have a solid and well-established organizational structure. If a farmer is a member of a farmer organization is more likely that he could have access to information about prices, weather information, training programs, and even private extension services. Finally, risk aversion negatively influences risk-averse farmers as they tend to avoid changes in technologies or practices, even more when these activities are expensive.
The dissertation provides lessons for designing policies and strategies that focus on facilitating accessibility to exchangeable inputs and promoting the provision of extension services to a broader area. Additionally, facilitate access to irrigation through subsidies and credits, improve trust in programs and networks and develop cooperative enterprises or local and horizontal organizations to share information and services from farmer to farmer. Finally, it is important to generate action plans to improve risk and loss behavior, seize technological and economic opportunities, and not overestimate extreme events.