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The Impact of Enhancements to Weather-Forecasting Services on Agricultural Investment Behavior: A Field Experiment in Taiwan

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  • 1 Department of Economics, Catholic University of Korea, Seoul, South Korea
  • 2 The Third Research Division, Chung-Hua Institution for Economic Research, Taipei, Taiwan
  • 3 The First Research Division, Chung-Hua Institution for Economic Research, Taipei, Taiwan
  • 4 Department of Applied Economics, National University of Kaohsiung, Kaohsiung, Taiwan
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Abstract

A better understanding of farmers’ investment strategies associated with climate and weather is crucial to protecting farming and other climate-exposed sectors from extreme hydrometeorological events. Accordingly, this study employed a field experiment to investigate the investment decisions under risk and uncertainty by 213 farmers from four regions of Taiwan. Each was asked 30 questions that paired “no investment,” “investment with crop insurance,” “investment with subsidized crop insurance,” and “investment” as possible responses. By providing imperfect information and various probabilities of certain states occurring, the experimental scenarios mimicked various types of weather-forecasting services. As well as their socioeconomic characteristics, the background information we collected about the participants included their experiences of natural disasters and what actions they take to protect their crops from weather damage. The sampled farmers became more conservative in their decision-making as the weather forecasts they received became more precise, except when increases in risk were associated with high returns. The provision of insurance subsidies also had a conservatizing effect. However, considerable variation in investment preferences was observed according to the farmers’ crop types. For those seeking to create comprehensive policies aimed at helping the agricultural sector deal with the costs of damage from extreme events, this study has important implications. This approach could be extended to research on the perceptions of decision-makers in other climate-exposed sectors such as the construction industry.

Significance Statement

While farmers have shown their eagerness to obtain timely weather forecasts and better forecasting precision, we would like to understand how they respond to an enhanced weather-forecast service. We observe 213 Taiwanese farmers’ investment preferences using a field experiment involving 30 questions. Two weather states, good and bad, are used to mimic various types of agricultural harvest environment. The proportion of weather states indicates the likelihood of states occurring. The unknown state, controlled by providing imperfect information, implies the accuracy of forecasts. The less that is unknown, the more accurate is the forecast. In addition, we examine farmers’ decisions in the experiment in accordance with their socioeconomic characteristics and experiences of natural disasters in the real world. Our findings suggest that, in general, farmers could be more conservative as the weather forecast became more precise. However, such an effect varies with the farmers’ crop types. Moreover, the provision of insurance subsidies also has a conservatizing effect. We also provide policy implications not only in relation to enhanced weather forecasting, but also in regard to crop insurance against natural disasters.

© 2021 American Meteorological Society. For information regarding reuse of this content and general copyright information, consult the AMS Copyright Policy (www.ametsoc.org/PUBSReuseLicenses).

Corresponding author: Fang-I Wen, fangiwen@cier.edu.tw

Abstract

A better understanding of farmers’ investment strategies associated with climate and weather is crucial to protecting farming and other climate-exposed sectors from extreme hydrometeorological events. Accordingly, this study employed a field experiment to investigate the investment decisions under risk and uncertainty by 213 farmers from four regions of Taiwan. Each was asked 30 questions that paired “no investment,” “investment with crop insurance,” “investment with subsidized crop insurance,” and “investment” as possible responses. By providing imperfect information and various probabilities of certain states occurring, the experimental scenarios mimicked various types of weather-forecasting services. As well as their socioeconomic characteristics, the background information we collected about the participants included their experiences of natural disasters and what actions they take to protect their crops from weather damage. The sampled farmers became more conservative in their decision-making as the weather forecasts they received became more precise, except when increases in risk were associated with high returns. The provision of insurance subsidies also had a conservatizing effect. However, considerable variation in investment preferences was observed according to the farmers’ crop types. For those seeking to create comprehensive policies aimed at helping the agricultural sector deal with the costs of damage from extreme events, this study has important implications. This approach could be extended to research on the perceptions of decision-makers in other climate-exposed sectors such as the construction industry.

Significance Statement

While farmers have shown their eagerness to obtain timely weather forecasts and better forecasting precision, we would like to understand how they respond to an enhanced weather-forecast service. We observe 213 Taiwanese farmers’ investment preferences using a field experiment involving 30 questions. Two weather states, good and bad, are used to mimic various types of agricultural harvest environment. The proportion of weather states indicates the likelihood of states occurring. The unknown state, controlled by providing imperfect information, implies the accuracy of forecasts. The less that is unknown, the more accurate is the forecast. In addition, we examine farmers’ decisions in the experiment in accordance with their socioeconomic characteristics and experiences of natural disasters in the real world. Our findings suggest that, in general, farmers could be more conservative as the weather forecast became more precise. However, such an effect varies with the farmers’ crop types. Moreover, the provision of insurance subsidies also has a conservatizing effect. We also provide policy implications not only in relation to enhanced weather forecasting, but also in regard to crop insurance against natural disasters.

© 2021 American Meteorological Society. For information regarding reuse of this content and general copyright information, consult the AMS Copyright Policy (www.ametsoc.org/PUBSReuseLicenses).

Corresponding author: Fang-I Wen, fangiwen@cier.edu.tw
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