Risk preferences under heterogeneous environmental risk

We study risk preferences and their determinants for commercial cattle farmers in Namibia who are subject to high precipitation risk that is heterogeneous across farms. We use data on risk preferences from questionnaire and field experiments, simulated data for on-farm precipitation risk and data on famers’ previous place of residence. We find that, on average, less risk-averse farmers operate farms with higher precipitation risk. Moreover, the longer farmers experience a given precipitation risk in early life the more risk-averse they are. These findings suggest self-selection and endogeneity of risk preferences, respectively.