RISK MANAGEMENT FOR LIVESTOCK PRODUCERS: HEDGING AND CONTRACT PRODUCTION

Livestock Production/Industries, Risk and Uncertainty,

THE VALUE OF PUBLIC INFORMATION FOR MICROECONOMIC PRODUCTION DECISIONS

Procedures are needed to evaluate the benefits of the provision of information. This paper shows how to apply a money metric definition of the value of information for this purpose. The application is to microeconomic input choices for agricultural production, and the information to be valued concerns the effect of fertilization on sorghum yield. In this paper application both output price and output level are stochastic, and the probability distribution of output is affected by the chosen level of fertilizer.Crop Production/Industries,

Vector Autoregression Forecasting Models: Suggested Improvements

Two methods for building vector autoregression forecasting models are proposed. The first allows exclusion of intermediate lags; the second considers •the effects of jointly entering lags from different series into an equation. Live hog market models are developed and out-of-sample forecasting results suggest both methods have merit

Risk Modeling via Direct Utility Maximization Using Numerical Quadrature

An approach to risk modeling is developed which uses nonlinear programming and numerical integration to directly solve the expected utility maximization problem. The approach contrasts with earlier efforts in that, rather than using an empirical density function, a joint probability density function is explicitly specified. Comparisons are done showing that this approach yields more accurate solutions than the empirical density approach even when many points are sampled from the theoretical distribution. Key words: expected utility, mathematical programming, risk. Uncertainty of future events has led to the de-velopment of a number of models to analyze decision situations under risk. Because some decision information is not known with cer-tainty, the assumption is made that decision makers maximize expected utility. That is, an explicit subjective joint probability distribu-tion is ascribed to the unknown variables (e.g., the price and quantity of output for ag-ricultural production). The expected value of utility serves as the measure by which the de-cision maker evaluates choices. When the probability distribution in question is continu-ous, the computation of expected utility amounts to integrating a function. Frequently, these integrals have no closed-form solution. Because computational procedures are lack-ing, choices have been ranked using approxi-mations of expected utility [e.g., expected value-variance (E-V) models (Tobin, Mark-owitz)] or stochastic dominance analysis (Cochran, Robison, and Lodwick; Meyer). This article discusses a new approach to risk modeling. As with the direct expected utility-maximizing nonlinear program (DEMP) approach proposed by Lambert and McCarl, the central idea is to use mathematical pro

OPTIMAL USE OF QUALITATIVE MODELS: AN APPLICATION TO COUNTRY GRAIN ELEVATOR BANKRUPTCIES

Qualitative models can be used for decision making under uncertainty. This provides a useful framework for evaluating the models. If the costs for every action/state of nature combination are known, decisions made using a well-calibrated model would result in actual costs being close to expected costs. In addition, the actual cost can be compared to the cost of perfect foresight actions, giving a bound on the value of a better model. Application of these procedures is made using a logit model developed to predict Missouri country grain elevator bankruptcy

WATERSHED-SCALE ECONOMIC AND ENVIRONMENTAL TRADEOFFS INCORPORATING RISKS: A TARGET MOTAD APPROACH

This paper evaluates the economic and environmental tradeoffs at watershed scale by incorporating both economic and environmental risks in agricultural production. The Target MOTAD model is modified by imposing a probability-constrained objective function to capture the yield uncertainty caused by random allocation of farming systems to soil types and by introducing environmental targets to incorporate environmental risk due to random storm events. This framework is used to determine the tradeoffs frontier between watershed net return and sediment yield and nitrogen concentration in runoff in Goodwater Creek watershed, Missouri. The frontier is significantly affected by environmental risk preference

THE VALUE OF PUBLIC INFORMATION FOR MICROECONOMIC PRODUCTION DECISIONS

Procedures are needed to evaluate the benefits of the provision of information. This paper shows how to apply a money metric definition of the value of information for this purpose. The application is to microeconomic input choices for agricultural production, and the information to be valued concerns the effect of fertilization on sorghum yield. In this paper application both output price and output level are stochastic, and the probability distribution of output is affected by the chosen level of fertilizer