Environmental Good Production in the Optimum Activities Portfolio of a Risk Averse Farmer

Abstract

An analytical framework is proposed for analysis of environmental good production by farmers in the case of price uncertainty. Environmental good production contracted by means of agri-environmental agreements is treated as a risk less option in the farmer's production activities portfolio. Efficient frontiers were generated using mathematical programming farm level models of suckler cow farms in Monts du Cantal, in France. It was demonstrated that for a DARA risk averse farmer: 1) the agreement payment level is not without impact on the farming intensity on parcels not subscribed under the corresponding argi-environmental programme, 2) a lump sum payment matters under uncertainty, 3) the overall impact of the lump sum payment on environmental good production depends on the type of jointness in production of agricultural and environmental goods, and on the level of uncertainty.uncertainty, portfolio optimisation, biodiversity, agricultural policy, mathematical programming, Agricultural and Food Policy, Resource /Energy Economics and Policy, Q12, Q18, Q28,