Average vs. Marginal Risk Aversion: Reconciling Simultaneously Risk Averse and Risk Loving Behavior

Risk and Uncertainty,

Soybean Acreage Response in Brazil

This paper advances Williams and Thompson (1984) by updating their work and by explicitly accounting for price and yield risk in the analysis of acreage response in Brazil for soybeans and by assessing model specification. Empirical equations were estimated using seemingly unrelated regression (SUR). The robustness of the model was evaluated in the battery of misspecification tests suggested by McGuirk et al. (1993) and McGuirk et al. (1995). The results of the testing procedure suggest that the model is fairly robust in terms of normality, heteroscedasticity and functional form. The results point to parameter instability in the soybean model. The approach to the problem of parameter instability involved dividing the data in two periods and estimating regressions for each period. The signs of the significant coefficients were consistent with expectation, particularly for the second period. Soybean acreage is explained mainly by past acreage, expected prices of soybeans and land competing crops (cotton, rice, and corn), and price and yield risk. Results suggest that market signals played a reduced role in the soybean acreage growth in early years. In contrast, in recent years producers in Brazil became more sensitive to changes in prices and risk. Measures of short-run price elasticity of soybean acreage response are similar to the one obtained by William and Thompson (1984) for soybean supply. Long-run elasticities are significantly smaller.Crop Production/Industries,

An Error-Components Three-Stage Least-Squares Model of Investment Allocation by Farm Households

This paper is an assessment of patterns of investment by farm households via an econometric model adapted from a land allocation approach of Holt (1999). This analysis will shed light on the importance of different classes of assets to farm household well-being, and show the reaction of farm households to a variety of market, international and government effects.Farm Management,

Learning by Doing, Risk Aversion and Use of Risk Management Strategies

Using a national survey, double hurdle models are estimated to examine the impact of farmers’ risk attitude on use of production and marketing contracts. Risk averse farmers are less likely to use contracts but risk attitude does not have any significant impact on the intensity at which contracts are adopted.Risk attitude, Double hurdle model, production contracts, marketing contracts, Agribusiness, Crop Production/Industries, Farm Management, Livestock Production/Industries, Marketing, Risk and Uncertainty, Q10, Q13, D81,

Measuring producer welfare under output price uncertainty and risk non-neutrality

Procedures to measure the producer welfare effects of changes in an output price distribution under uncertainty are reviewed. Theory and numerical integration methods are combined to show how for any form of Marshallian risk-responsive supply, compensating variation of a change in higher moments of an output price distribution can be derived numerically. The numerical procedure enables measurement of producer welfare effects in the many circumstances in which risk and uncertainty are important elements. The practical ease and potential usefulness of the procedure is illustrated by measuring the producer welfare effects of USA rice policy.price uncertainty, risk non-neutrality, welfare economics, Demand and Price Analysis, Risk and Uncertainty,

Assessing the Effects of Climate Change on Farm Production and Profitability: Dynamic Simulation Approach

In this paper, a dynamic optimization model was developed to simulate how farm-level realized price and profitability respond to yield change which was induced by climate change. Producers' acreage response was included in the dynamic model considering crop rotation effect. In the crop rotation model, a modified Bellman equation was used to dynamically optimize the net present value of farm profit for a five-year interval. This simulation process was repeated through the year 2050. Then yield, price, and acreage response were compiled to generate realized profit. Results generally indicated that reduction in crop yields due to climate change results in reduced farm profitability for most of the states studied. Predicted climate change is more likely to pose a problem for agricultural production and profitability in the southern U.S. states as compared to the northern U.S. states. Our results also suggest that acreage response alone is not sufficient to ameliorate the potential negative effects of global climate change on agricultural production and profitability. The results of this research are expected to provide a foundation for future related research to aid producers' crop rotation decisions in an unstable price environment.Dynamic simulation model, Acreage response, Crop rotation, Expected price, Realized price, Agricultural Finance, Crop Production/Industries, Environmental Economics and Policy, Farm Management, Land Economics/Use, Production Economics, Productivity Analysis, Risk and Uncertainty,