Abstract
Extreme meteorological events have increased over the last decades and it is widely accepted that it is due to climate change (IPCC, Climate Change 2007, Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge, 2007; Beniston et al., Clim. Change 81:71–95, 2007). Some of these extremes, like drought or frost episodes, largely affect agricultural outputs, and risk management becomes crucial. The goal of this paper it is to analyze farmers’ decisions about risk management, taking into account climatological and meteorological information. We consider a situation in which the farmer, as part of crop management, has available technology to protect the harvest from weather effects. This approach has been used by Murphy et al. (Mon. Weather Rev. 113:801–813, 1985), Katz and Murphy (J. Forecast. 9:75–86, 1990 and Economic Value of Weather and Climate Forecasts, pp. 183–217, Cambridge University Press, Cambridge, 1997) and others in the case when the farmer maximizes the expected returns. In our model, we introduce the attitude towards risk. Thus we can evaluate how the optimal decision is affected by the absolute risk aversion coefficient of Arrow and Pratt, and compute the economic value of the information in this context, while proposing a measure to estimate the amount of money that the farmer is willing to pay for this information in terms of the certainty equivalent.
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Previous version of this paper has been presented in the XIV Jornadas de Asepuma (Badajoz, 2006) and the 22nd European Conference on Operations Research (Prague, 2007). Financial support from the Spanish Ministry of Education (project SEJ2005-05085/ECON) is gratefully acknowledged. We are grateful to J.B. Readman for his linguistic revision of the text. Any error is our responsibility.
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Cerdá Tena, E., Quiroga Gómez, S. Economic value of weather forecasting: the role of risk aversion. TOP 19, 130–149 (2011). https://doi.org/10.1007/s11750-009-0114-3
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DOI: https://doi.org/10.1007/s11750-009-0114-3