Risk Belief, Producer Demand, and Valuation of Improved Irrigations: Results from Field Experiments in Mt. Kilimanjaro

This paper systematically estimates the potential benefit of introducing improved irrigation schemes in Mt. Kilimanjaro to help rain dependent farmers cope with the risks of climate change. The study uses Contingent Valuation Method (CVM) to elicit farmers’ Willingness to Pay (WTP) for eliminating the risks of crop loss by accessing improved irrigation schemes. Data for the analysis were gathered using a double bounded survey from over 200 randomly-sampled farmers in 15 villages. The study makes a contribution to the applied welfare literature and should also be useful for policymakers in Africa. The policy contribution consists of valuation of improved irrigation in the presence of climate change risks. The applied welfare contribution consists of empirical evidence about the impact of farmer’s risk aversion on welfare valuation. Pratt and Zeckhauser (1996) argue on conceptual grounds that in the absence of complete contingent claims market, individual WTP per unit of risk reduction will depend significantly on the level of risk and the magnitude of reduction that is offered. The present study captures individual farmer’s risk exposure by constructing an index for farmers’ expected rainfall. Since mean WTP is nonlinear in its parameters, mean WTP is computed based on the Krinsky and Robb (1986) method, which simulates the confidence interval and the achieved significance levels (ASL) for testing the null hypothesis that WTP≤0. The results show that farmers with lower expectations about future rainfall are willing to pay more for accessing the improved irrigation scheme. In addition, Mt. Kilimanjaro farmers are willing to pay up to 10% of their income to have access to improved irrigation canals. Assuming a 5% discount rate, the study found that farmers will reimburse the cost of building the irrigation scheme after 7 to 9 years.

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Conference Paper/ Presentation
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JEL Codes:
Q12; Q18; Q25; Q51; Q56
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Selected Poster

 Record created 2017-04-01, last modified 2018-01-22

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