Volume 29, Issue 3
DOI: 10.24205/03276716.2020.705
Farmers’ Risk Preferences and the Determinants of Risk Preferences in Upland Areas of Vietnam
Abstract
This study conducted to examine the risk preferences of upland farmers of Vietnam. The modified multiple price list method of Holt and Laury (2002) was used to elicit the farmers’ risk preferences. A linear regression was estimated to determine the sociodemographic factors affecting farmers’ risk preferences. The results indicated that 80.5% of respondents are risk averse, 12% are risk neutral and 7.5% are risk loving. There exists the relationship between risk preferences with socio-demographic characteristics such as nonfarm and farm income, sex, age. The majority of respondents are risk averse, which will influence farm operations and management decision. The policies in the uplands of Vietnam must consider reduce the risk or make them less risk averse to the farmers by generating more farm and non-farm income, investing on farmers’ education and training, and supporting risk management strategies.
In agricultural activities, upland farmers of Vietnam have to face so many risks and constraints, namely, climate change, notably, erratic rainfall patterns and more frequent extreme weather; the small markets, unstable market price, poor infrastructure, and farm diseases. Therefore, risk is an integral part of decision-making processes, especially in upland agriculture in developing countries (Keil & Nielsen, 2012).Risk preferences might influence farm operations and management decisions (Akhtar et al., 2018) like adoption of technologies, participation in different enterprises, choice of adaptation mechanisms.
Ascertaining the attitude of farmers toward risk is an important first step in understanding their behavior and coping strategies they normally adopt to mitigate the effects of risk they constantly face within the environment they operate (Dadzie & Acquah, 2012). Unfortunately, measures of risk preferences in low income countries are fairly rare (Bezabih & Sarr, 2012). This study was conducted aim to explore risk preference of upland farmers and analyze the potential impacts of various factors on their risk preferences. This finding may provide better understanding of the farmers’ risk preferences that ultimately shape their decisions under risky situations.
2. Literature Review
Risk preference refers to the attitude people hold towards risks (Dadzie & Acquah, 2012). In terms of farmers’ attitudes toward risk, farmers differ in the degree to which they accept risk. Some farmers are willing to accept more risk than others. Attitudes to risk are often related to the financial ability of the farmer to accept a small gain or loss.
Keywords
farmers, risk preferences, determinants, upland, Vietnam