Farmers' pro-social motivations and willingness-to-accept in markets with public goods

Abstract

To explain how some farmers' decisions may diverge from profit-maximization, we incorporate proactive social preferences for public goods in an expected utility framework, in addition to reactive risk preferences to uncertainty. We offer empirical evidence that proactive preferences influence farmers' decisions alongside reactive preferences by combining a discrete choice experiment, a dictator game, and the Eckle Grossman risk elicitation method. In our application, farmers choose between selling to origin-identified (OI) markets, which may provide public goods but involve uncertainty, and to wholesale markets, which offer certainty but do not provide public goods. Farmers are heterogeneous in their valuation of OI markets, but, on average, are willing to accept loss in profit to sell to OI markets. This willingness-to-accept is partially explained by farmers' social preferences, even when controlling for risk preferences. Our results show that when evaluating policies, failure to consider either social or risk preferences leads to considerably different outcomes. To increase sales through OI markets and support the perceived associated public goods, policymakers could leverage farmers' preferences for these markets with carefully designed incentives.