Value of perfect ENSO phase predictions for agriculture: evaluating the impact of land tenure and decision objectives

Abstract

In many places, predictions of regional climate variability associated with the El Niño-Southern Oscillation phenomenon offer the potential to improve farmers' decision outcomes, by mitigating the negative impacts of adverse conditions or by taking advantage of favorable conditions. While the notion that climate forecasts are potentially valuable has been established, questions of when they may be more or less valuable have proven harder to resolve. Using simulations, we estimate the expected value of seasonal climate information under alternative assumptions about (a) land tenure (ownership vs. short-term leases) and (b) the decision maker's objective function (expected utility vs. prospect theory value function maximization), Senior authorship is shared. 146Climatic Change (2009) 97:145-170 employing a full range of plausible parameter values for each objective function. This allows us to show the extent to which the value of information depends on risk preferences, loss aversion, wealth levels and expectations, as well as situational constraints. Our results demonstrate in a non-laboratory decision context that, in some cases, psychologically plausible deviations from expected utility maximization can lead to substantial differences in estimates of the expected value of climate forecasts. Efforts to foster effective use of climate information and forecasts in agriculture must be grounded in a firm understanding of the goals, objectives and constraints of decision makers.

Does decadal climate variation influence wheat and maize production in the southeast USA?

“…These findings are significant given the fact that seasonal climate and crop yields forecasts often have low skill and therefore, little value in crop management in many parts of the world (Ash et al, 2007;Vizard and Anderson, 2009;Wang et al, 2009;McIntosh et al, 2007;Mauget et al, 2009;Letson et al, 2009;Messina et al, 1999), including the southeastern USA (Cabrera et al, 2007;Jones et al, 2000;Stefanova et al, 2012;Tian et al, 2014). The knowledge of teleconnections between decadal climate variability and local seasonal climate variability could be potentially useful to further refining seasonal forecasts to improve seasonal crop management.…”

Digital Irrigated Agriculture: Towards a Framework for Comprehensive Analysis of Decision Processes under Uncertainty

“…Decisions are affected by the DM's behavioral perspective with a relevant role played by attitudes toward uncertainty [33]. In every decision under uncertainty, risk is involved and aversion to it might cause DMs to sacrifice part of their revenues to lower the variability of uncertain outcomes [16].…”

Psychology and behavioral economics lessons for the design of a green growth strategy

“…Another variable that differs quite significantly as a function of the reference point for returns (and thus the region of the return distribution that is encoded as a loss and subject to loss aversion) is the value of information (VOI) of available seasonal climate forecasts that tell farmers probabilistically, but with some measure of skill, whether the coming growing season is of an "el nino," "la nina," or "normal" type. Whereas the VOI of such climate forecasts is on average positive, in the vicinity of 6-7% (meaning that farmers' satisfaction with their returns can be expected to improve by this percentage if they use the climate forecast in an optimal fashion), for some combination of parameter values (high reference points or aspiration levels and large loss aversion), the VOI can actually be negative (Letson et al, 2009). These results suggest more generally that policy makers need to better understand decision makers' utility function and reference points in order to evaluate the impact of technological innovations and policy interventions.…”