Risk Aversion and Farm Input Choice:
Evidence from Field Experiments in China

GONG Yazhen, Kathy Baylis, XU Jintao,
Robert Kozak and Gary Bull

School of Environment and Natural Resources, Renmin University
Department of Agriculture and Consumer Economics, University of Illinois,
College of Environmental Sciences and Engineering, Peking University
Faculty of Forestry, University of British Columbia
Faculty of Forestry, University of British Columbia

Abstract:
Overuse of fertilizer and pesticides is a substantial source of water pollution in China, and reducing chemical input use is a government policy objective. Using data on risk aversion from field experiments in the Yunnan Province of southwestern China, we ask how risk attitudes affects farm input choice. Major findings in our paper include: [1] as expected, most of our 300 farmers’ exhibit substantial risk aversion; [2] risk aversion affects input intensity differently for market-oriented versus subsistence farmers. [3] risk aversion is related with the increased use of pesticides by market-oriented producers, but a reduction of pesticide use by subsistence farmers; and [4] market producers are more concerned with stabilizing income, while subsistence producers are more concerned with stabilizing production.

Keywords: risk; risk aversion; China; water pollution; fertilizer; pesticides