The Risk Attitudes of U.S. Farmers

I compare the distribution of risk attitudes of farm owners in the United States to nonfarm business owners and the general population using a measure of risk tolerance collected from national surveys. I find that farmers are significantly more tolerant of risk than the general population, though they are significantly less tolerant of risk than nonfarm business owners. Once demographic differences are controlled, farm and nonfarm business owners are more similar in their risk attitudes and both groups remain significantly more risk tolerant than the general population. First-generation farmers display greater risk tolerance than farmers who inherit operations from family members, as do farmers who have just begun operating a farm; neither pattern emerges among nonfarm business owners. The most risk tolerant farmers are young and male with larger operations, higher incomes, less formal education and close proximity to metropolitan centers. Among farmers, those with less diversified operations and those with specialty enterprises are more risk tolerant than other types of farmers. Crop farmers are less risk tolerant than fruit and vegetable farmers or farmers with specialty enterprises, while farmers who receive government payments or buy enterprise insurance are not significantly different in risk tolerance from farmers who eschew such opportunities. These findings stimulate questions about how farm programs and the distinct challenges of entry in the production agriculture sector shape the underlying distribution of key farmer characteristics such as risk tolerance.