Vulnerable entrepreneurs’ preferences for climate risk management: A discrete choice experiment with micro-enterprises in the Philippines

Small enterprises are important contributors to economic development and local employment in low- and middle-income countries. However, they are often highly vulnerable to climate risks and have limited capacity to adapt to them. This study assesses the preferences of micro-enterprises in the Philippines for risk management strategies in response to climate risks and environmental hazards. We conducted a discrete choice experiment with 625 randomly selected entrepreneurs and estimated their preferences for three strategies: improved information sharing and early warning; resilient and protective infrastructure; and climate risk insurance. Using a random parameter logit model, we estimate willingness to pay and compensating variation for all combinations of strategies and enterprise profiles. We find that entrepreneurs consider all strategies highly relevant, with climate risk insurance being the most preferred. Entrepreneurs show a higher willingness to pay for combined strategies, indicating a willingness to allocate at least 7.2% of their net income to an integrated set of climate adaptation strategies. Female entrepreneurs are less willing to pay for any strategy, and rural enterprises are less willing to pay for climate risk insurance. This may be explained by lower financial literacy in both cases. Furthermore, we show that participation in climate risk information events is associated with higher preferences for all strategies. We conclude that small enterprises show a significant but heterogeneous willingness to invest in climate risk management. Raising awareness and providing information about climate risks is likely to increase entrepreneurs' willingness to manage climate risks. Furthermore, expanding the availability of climate risk insurance is crucial to meet the high demand among enterprises. The results of this study can guide policymakers to allocate funds for climate risk management more efficiently and promote needs-based climate adaptation policies to support vulnerable populations.