Conservation Payments under Risk: A Stochastic Dominance Approach

Conservation payments can be used to preserve forest and agroforest systems in developing countries. To explain landowners’ land-use decisions and determine the appropriate conservation payments, it is necessary to focus on risk associated with agricultural price and yield volatility. A theoretical framework is provided for assessing land-use allocation problems under risk and setting risk-efficient conservation payments when returns are not necessary normally distributed. Stochastic dominance rules are used to derive conditions for determining the conservation payments required to guarantee that the environmentally-preferred land use dominates, even when land uses are not considered to be mutually exclusive. An empirical application to shaded-coffee protection in the biologically important El Chocó region of West Ecuador shows that conservation payments required for preserving shaded-coffee areas are much higher than those calculated under the assumption of risk-neutrality. Further, the extant distribution of land has a strong impact on the required conservation payments.risk, conservation payments, land allocation, stochastic dominance, agroforest systems, portfolio diversification

Conservation Payments under Risk: A Stochastic Dominance Approach

Conservation payments can be used to preserve forest and agroforest systems. To explain landowners’ land-use decisions and determine appropriate conservation payments, it is necessary to focus on revenue risk. Marginal conditional stochastic dominance rules are used to derive conditions for determining the conservation payments required to guarantee that the environmentally-preferred land use dominates. An empirical application to shaded-coffee protection in the biologically important Chocó region of West-Ecuador shows that conservation payments required for preserving shaded-coffee areas are much higher than those calculated under risk-neutral assumptions. Further, the extant distribution of land has strong impacts on the required payments.agroforest systems, conservation payments, land allocation, portfolio diversification, risk, stochastic dominance

Stochastic Dominance Portfolio Analysis of Forestry Assets

We consider the forestry decision-making and harvesting problem from the perspective of financial portfolio management, where harvestable forest stands constitute one of the liquid assets of the portfolio. Using real data from Finnish mixed borealis forests and from the Helsinki stock exchange, we investigate the effect of trading the timber stock together with the forest land, or without the land (i.e., harvesting), on the portfolio efficiency. As our research methodology, we utilize the general Stochastic Dominance (SD) criteria, focusing on the recent theoretical advances in analyzing portfolio diversification within the SD framework. Our findings shed some further light on the question of how to model the forestry planning problem, and provide some comparative evidence of the applicability of the alternative SD test approaches.Forest Management, Portfolio Optimization, Stochastic Dominance, Diversification

Stochastic Dominance Efficiency Tests under Diversification

This paper focuses on Stochastic Dominance (SD) efficiency in a finite empirical panel data. We analytically characterize the sets of unsorted time series that dominate a given evaluated distribution by the First, Second, and Third order SD. Using these insights, we develop simple Linear Programming and 0-1 Mixed Integer Linear Programming tests of SD efficiency. The advantage to the earlier efficiency tests is that the proposed approach explicitly accounts for diversification. Allowing for diversification can both improve the power of the empirical SD tests, and enable SD based portfolio optimization. A simple numerical example illustrates the SD efficiency tests. Discussion on the application potential and the future research directions concludes.Stochastic Dominance, Protfolio Choice, Efficiency, Diversification, Mathematical Programming

Data Envelopment Analysis Models of Investment Funds

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Dryland Wheat variety selection in the Texas High Plain

Selecting the best wheat varieties affects producers’ profit and financial risk. This study identifies the optimal wheat variety selection using the portfolio approach at various risk aversion levels. Results showed that the optimal wheat variety selection was significantly affected by changes in levels of risk aversion of decision makersDryland, Portfolio, risk, wheat Variety, Farm Management,

Market Efficiency of Oil Spot and Futures: A Stochastic Dominance Approach

This paper examines the market efficiency of oil spot and futures prices by using a stochastic dominance (SD) approach. As there is no evidence of an SD relationship between oil spot and futures, we conclude that there is no arbitrage opportunity between these two markets, and that both market efficiency and market rationality are not rejected in the oil spot and futures markets.

"Market Efficiency of Oil Spot and Futures: A Stochastic Dominance Approach"

This paper examines the market efficiency of oil spot and futures prices by using a stochastic dominance (SD) approach. As there is no evidence of an SD relationship between oil spot and futures, we conclude that there is no arbitrage opportunity between these two markets, and that both market efficiency and market rationality are not rejected in the oil spot and futures markets.

Market Efficiency of Oil Spot and Futures: A Stochastic Dominance Approach

This paper examines the market efficiency of oil spot and futures prices by using a stochastic dominance (SD) approach. As there is no evidence of an SD relationship between oil spot and futures, we conclude that there is no arbitrage opportunity between these two markets, and that both market efficiency and market rationality are not rejected in the oil spot and futures markets.stochastic dominance;futures market;risk averter;risk seeker;spot market

HOG PRODUCER INVESTMENT IN VALUE-ADDED AGRIBUSINESS: RISK AND RETURN IMPLICATIONS

Although producers have been enticed into investment in value-added agribusiness the risk and return impacts have not been quantified. A spreadsheet simulation model is used to evaluate how investments by hog farmers in slaughter plants and other alternatives affect returns and risk. Results suggest that hog producer investment in value-added agribusiness is efficient.Value-Added, Producer Investment, Financial Economics, Livestock Production/Industries,