Changing background risk and risk-taking: Evidence from the field

Arbeitspapier

Decisions involving risk are usually taken in the presence of other insurable or non-insurable risks, the latter type called background risk. We examine how changing background risk influences risk-taking based on panel data with monthly observations from Senegalese fishermen. Fishing income is volatile and income risk depends on weather conditions and on technologies employed. To measure risktaking, we use an incentivized investment task. To measure background risk, we consider long-run wind conditions and a measure based on comparing standardized monthly income deviations from the yearly individual mean. We find that the latter measure that controls for technology choices and thus takes conscious reduction of risk exposure into account has a significant impact when overall fishing income is below average. Then, higher income risk increases risk-taking, suggesting intemperate behavior in low-income situations. This effect is stronger for poorer fishermen, highlighting the need for safety nets.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economics Working Paper Series ; No. 18/301

Classification and Topics

• Classification: Wirtschaft ; Field Experiments ; Criteria for Decision-Making under Risk and Uncertainty ; Microeconomic Analyses of Economic Development ; Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products ; Renewable Resources and Conservation: Fishery; Aquaculture
• Subject: risk-taking ; background risk ; temperance ; investment ; fisheries ; Senegal

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kleemann, Linda ; Riekhof, Marie-Catherine
• Event: Veröffentlichung
• (who): ETH Zurich, CER-ETH - Center of Economic Research
• (where): Zurich
• (when): 2018

Further information

• DOI: doi:10.3929/ethz-b-000300862
• Handle: http://hdl.handle.net/10419/194124