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

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  • 1 Assistant Professor, Department of Economics, Catholic University of Korea, South Korea, yuhsuan.lin@catholic.ac.kr
  • 2 Assistant Research Fellow, The Third Research Division, Chung-Hua Institution for Economic Research, Taiwan, henilin@cier.edu.tw
  • 3 Associate Research Fellow, The First Research Division, Chung-Hua Institution for Economic Research, Taiwan, fangiwen@cier.edu.tw
  • 4 Associate professor, Department of Applied Economics, National University of Kaohsiung, Taiwan, ssheu@nuk.edu.tw
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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 hydro-meteorological 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.

Corresponding author. Email: 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 hydro-meteorological 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.

Corresponding author. Email: fangiwen@cier.edu.tw.
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