Adaptation to Climate Change: Farmers' Risk Preferences and the Role of Irrigation

We adopt a moment based approach to investigate how individual producers' optimize input usage, in particular irrigation water, taking into account their risk preferences. We rely on a panel data of 122,800 Italian farms, spread over 1981 to 2003. We capture both variation over farms and over time. We show that risk aversion has increased over time, while down-side risk aversion has been more stable and that farmers specializing in different crops exhibit different risk aversion and use irrigation water with diverse efficiency. Higher downside risk aversion is a key determinant in the decision to adopt irrigation technology