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Going beyond perfect rationality: drought risk, economic choices and the influence of social networks

van Duinen, R., Fialtova, T., Jager, W. & van der Veen, A., Nov-2016, In : Annals of Regional Science. 57, 2-3, p. 335-369 35 p.

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  • Rianne van Duinen
  • Tatiana Fialtova
  • Wander Jager
  • Anne van der Veen

Theoretical and experimental studies from psychological and behavioral sciences show that heuristics and social networks play an important role in decision-making under risk. The goal of this paper is to investigate the effects of empirical social networks and different behavioral rules on farmers' irrigation adoption under drought risk and its impacts on several macroeconomic indicators such as the rate of adaptation, water demand and regional agricultural income. We present an application of a spatial economic ABM which is able to simulate the effect of droughts on crop production, farm income and farm decision-making. The agents' population is parameterized using survey data, including data on social networks. Four experiments are conducted combining two climate scenarios with two behavioral scenarios (maximizers vs. heuristic-based agents). The results show that the adoption process follows a different path in the scenario with heuristic-based farmers. The adoption of irrigation is slower in the short run due to reliance on information from social networks and farmers' uncertainty regarding drought events. This results in agricultural income loss and a lower water demand in the short run compared to the scenario with maximizing agents.

Original languageEnglish
Pages (from-to)335-369
Number of pages35
JournalAnnals of Regional Science
Volume57
Issue number2-3
Early online date5-Oct-2015
Publication statusPublished - Nov-2016

    Keywords

  • AGENT-BASED MODELS, CLIMATE-CHANGE, FARM-LEVEL, COMPUTATIONAL ECONOMICS, PROTECTION MOTIVATION, PROSPECT-THEORY, ATTITUDE-CHANGE, WATER SCARCITY, SELF-EFFICACY, FEAR APPEALS

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