Is Risk a Limit or an Opportunity to Mitigate Greenhouse Gas Emissions? The Case of fertilization in Agriculture

Risk can represent an important non-monetary barrier to the adoption of climate change mitigation practices. This paper deals with how risk aversion influences the fertilization behavior of farmers. We analytically show that a decreasing variance of yield along with nitrogen inputs encourages risk averse farmers to apply larger quantities of fertilizers. Data concerning three departments in France are then used to determine (i) crop yield response function to N fertilizer and (ii) farmers' risk aversion behavior on the basis of their current fertilizer applications. We find that risk aversion is associated with an additional application of 29 kg/ha compared with risk neutral behavior, which represents an average loss of euro76/ha. We show that the reduction of an abatement linked to risk aversion should appear only when crop yield variance is convex with respect to N fertilizer. Lastly, our results show that an insurance contract that covers yield variability may be an interesting tool to mitigate emissions.