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Conference Agenda

Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).

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Daily Overview

Session

Behavioral Responses to Environmental Shocks and Externalities: Experimental Evidence
Location: B129
Session Chair: Gebretsadik Teshager Siltanu, University of Copenhagen

Presentation 4

The role of mutual insurance networks on smallholder farmers' cooperation under drought uncertainty: Empirical evidence from a dynamic irrigation game

Gebretsadik Teshager Siltanu¹, Gebreegziabher Fentahun Gugsa^1,2, Goytom Abraha Kahsay¹, Dagim Belay¹, Carsten Smith-Hall¹, Zewdu Berhanie Ayele²

1: University of Copenhagen, Denmark; 2: Bahir Dar University, Ethiopia

Discussant: Patrick Maus (Heidelberg University)

In the face of climate change induced droughts, flooding, and erratic rainfall, policymakers in low-income countries increasingly focus on integrated watershed management as a climate-smart strategy. This, however, requires collective action by smallholder farmers. In this study, we examined the effect of ex-ante mutual insurance network on collective action and farmers’ investment in watershed management under erratic drought scenarios. We conducted a lab-in-the-field experiment with 490 randomly selected smallholder farmers in Ethiopia using a dynamic irrigation game. Farmers were assigned to one of four experimental arms: (i) drought risk, (ii) mutual insurance, (iii) mutual insurance + drought risk, and (iv) base treatment. The results show that drought risk alone, as well as when combined with mutual insurance, negatively affects farmers’ investment and water extraction. Mutual insurance alone has no effect on investment. Heterogeneity analysis reveals that the effect of mutual insurance on investment in watershed management depends on farmers' positions (upstream or downstream) and the degree of social preferences (reciprocity). Furthermore, while drought decreases investment under no or moderate drought risks, it increases investment when it is severe or extreme. Given the expected increase in extreme weather events, these results reveal insights into strategies to enhance farmers’ collective action for integrated watershed management as a pathway to climate change adaptation.