IDEAS home Printed from https://ideas.repec.org/a/ags/aareaj/245954.html
   My bibliography  Save this article

Farmer responses to changing risk aversion, enterprise variability and resource endowments

Author

Listed:
  • Komarek, Adam M.
  • MacAulay, T. Gordon

Abstract

The focus of this article is on assessing how risk aversion, enterprise variability and resource endowments affect farm land-use decisions and economic returns. A theoretical model of a two-enterprise, two-constraint farm is developed, and then, an empirical illustration for an Australian farm is provided. The methodology used builds on previous expected mean-variance (EV) models by incorporating land and budget constraints. The Kuhn–Tucker conditions of the EV model are examined to highlight that changes in resource endowments have larger effects on economic returns, than do changes in risk aversion or enterprise gross margin variability. It was also found that combinations of enterprise mixes that do not use all available resources can produce higher economic returns, relative to some enterprise mixes that use all available resources.

Suggested Citation

  • Komarek, Adam M. & MacAulay, T. Gordon, 2013. "Farmer responses to changing risk aversion, enterprise variability and resource endowments," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(3).
    • Handle: RePEc:ags:aareaj:245954
    DOI: 10.22004/ag.econ.245954
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/245954/files/ajar12010.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.245954?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Lien, Gudbrand & Hardaker, J. Brian & Asseldonk, Marcel A.P.M. van & Richardson, James W., 2009. "Risk programming and sparse data: how to get more reliable results," Agricultural Systems, Elsevier, vol. 101(1-2), pages 42-48, June.
    2. Flaten, O. & Lien, G., 2007. "Stochastic utility-efficient programming of organic dairy farms," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1574-1583, September.
    3. Allan N. Rae, 1971. "Stochastic Programming, Utility, and Sequential Decision Problems in Farm Management," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 53(3), pages 448-460.
    4. Unknown, 2005. "Trends in Australian Agriculture," Commission Research Papers 31903, Productivity Commission.
    5. Jacquet, F. & Pluvinage, J., 1997. "Climatic uncertainty and farm policy: A discrete stochastic programming model for cereal-livestock farms in Glgeria," Agricultural Systems, Elsevier, vol. 53(4), pages 387-407, April.
    6. David J. Pannell, 2006. "Flat Earth Economics: The Far-reaching Consequences of Flat Payoff Functions in Economic Decision Making," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(4), pages 553-566.
    7. Chambers,Robert G. & Quiggin,John, 2000. "Uncertainty, Production, Choice, and Agency," Cambridge Books, Cambridge University Press, number 9780521622448.
    8. Barry T. Coyle, 1999. "Risk Aversion and Yield Uncertainty in Duality Models of Production: A Mean-Variance Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 553-567.
    9. Jean-Paul Chavas & Robert G. Chambers & Rulon D. Pope, 2010. "Production Economics and Farm Management: a Century of Contributions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(2), pages 356-375.
    10. Productivity Commission, 2005. "Trends in Australian Agriculture," Research Papers 0502, Productivity Commission, Government of Australia.
    11. Charles H. Fine & Robert M. Freund, 1990. "Optimal Investment in Product-Flexible Manufacturing Capacity," Management Science, INFORMS, vol. 36(4), pages 449-466, April.
    12. Just, Richard E., 2003. "Risk research in agricultural economics: opportunities and challenges for the next twenty-five years," Agricultural Systems, Elsevier, vol. 75(2-3), pages 123-159.
    13. Pannell, David J. & Malcolm, Bill & Kingwell, Ross S., 2000. "Are we risking too much? Perspectives on risk in farm modelling," Agricultural Economics, Blackwell, vol. 23(1), pages 69-78, June.
    14. Bond, Gary E. & Wonder, Bernard, 1980. "Risk Attitudes Amongst Australian Farmers," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 24(1), pages 1-19, April.
    15. G Lien & JB Hardaker, 2001. "Whole-farm planning under uncertainty: impacts of subsidy scheme and utility function on portfolio choice in Norwegian agriculture," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 28(1), pages 17-36, March.
    16. Gary E. Bond & Bernard Wonder, 1980. "Risk Attitudes Amongst Australian Farmers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 24(1), pages 16-34, April.
    17. Barry T. Coyle, 1992. "Risk Aversion and Price Risk in Duality Models of Production: A Linear Mean-Variance Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(4), pages 849-859.
    18. Sanfo, Safiétou & Gérard, Françoise, 2012. "Public policies for rural poverty alleviation: The case of agricultural households in the Plateau Central area of Burkina Faso," Agricultural Systems, Elsevier, vol. 110(C), pages 1-9.
    19. Ross S. Kingwell & David J. Pannell & Stephen D. Robinson, 1993. "Tactical responses to seasonal conditions in whole‐farm planning in Western Australia," Agricultural Economics, International Association of Agricultural Economists, vol. 8(3), pages 211-226, March.
    20. Gandorfer, Markus & Pannell, David & Meyer-Aurich, Andreas, 2011. "Analyzing the effects of risk and uncertainty on optimal tillage and nitrogen fertilizer intensity for field crops in Germany," Agricultural Systems, Elsevier, vol. 104(8), pages 615-622, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ferreira, Marcelo D P & Feres, Jose, 2018. "The Role of Climate Risk on Land Allocation in Brazilian Amazon," 2018 Annual Meeting, August 5-7, Washington, D.C. 274436, Agricultural and Applied Economics Association.
    2. Buchholz, Matthias & Musshoff, Oliver, 2014. "The role of weather derivatives and portfolio effects in agricultural water management," Agricultural Water Management, Elsevier, vol. 146(C), pages 34-44.
    3. Tamini, L.D. & Doyon, M. & Zan, M.M., 2014. "Investment Behavior of Canadian Egg Producers: Analyzing the Impacts of Risk Aversion and Variability of Prices and Costs of Production," Working Papers 163032, University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. CARPENTIER, Alain & GOHIN, Alexandre & SCKOKAI, Paolo & THOMAS, Alban, 2015. "Economic modelling of agricultural production: past advances and new challenges," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement (RAEStud), Institut National de la Recherche Agronomique (INRA), vol. 96(1), March.
    2. Acs, Szvetlana & Berentsen, Paul B.M. & Huirne, Ruud & van Asseldonk, Marcel, 2009. "Effect of yield and price risk on conversion from conventional to organic farming," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(3), pages 1-19.
    3. Monjardino, M. & McBeath, T. & Ouzman, J. & Llewellyn, R. & Jones, B., 2015. "Farmer risk-aversion limits closure of yield and profit gaps: A study of nitrogen management in the southern Australian wheatbelt," Agricultural Systems, Elsevier, vol. 137(C), pages 108-118.
    4. Crean, Jason & Parton, Kevin & Mullen, John & Jones, Randall, 2013. "Representing climatic uncertainty in agricultural models – an application of state-contingent theory," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(3).
    5. Ridier, Aude & Chaib, Karim & Roussy, Caroline, 2016. "A Dynamic Stochastic Programming model of crop rotation choice to test the adoption of long rotation under price and production risks," European Journal of Operational Research, Elsevier, vol. 252(1), pages 270-279.
    6. Nordblom, Thomas L. & Hutchings, Timothy R. & Godfrey, Sosheel S. & Schefe, Cassandra R., 2021. "Precision variable rate nitrogen for dryland farming on waterlogging Riverine Plains of Southeast Australia?," Agricultural Systems, Elsevier, vol. 186(C).
    7. Flaten, O. & Lien, G., 2007. "Stochastic utility-efficient programming of organic dairy farms," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1574-1583, September.
    8. Pannell, David J., 1995. "Economic aspects of legume management and legume research in dryland farming systems of southern Australia," Agricultural Systems, Elsevier, vol. 49(3), pages 217-236.
    9. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Are farmers in low-rainfall cropping regions under-fertilizing? An Australian case-study," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 124976, International Association of Agricultural Economists.
    10. Robert G. Chambers & Margarita Genius & Vangelis Tzouvelekas, 2021. "Invariant Risk Preferences and Supply Response under Price Risk," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(5), pages 1802-1819, October.
    11. Schilizzi, S. G. M. & Kingwell, R. S., 1999. "Effects of climatic and price uncertainty on the value of legume crops in a Mediterranean-type environment," Agricultural Systems, Elsevier, vol. 60(1), pages 55-69, May.
    12. Lien, Gudbrand & Hardaker, J. Brian & Asseldonk, Marcel A.P.M. van & Richardson, James W., 2009. "Risk programming and sparse data: how to get more reliable results," Agricultural Systems, Elsevier, vol. 101(1-2), pages 42-48, June.
    13. Kingwell, Ross S., 2006. "Climate change in Australia: agricultural impacts and adaptation," Australasian Agribusiness Review, University of Melbourne, Department of Agriculture and Food Systems, vol. 14.
    14. Adamson, David & Loch, Adam & Schwabe, Kurt, 2017. "Adaptation responses to increasing drought frequency," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 61(3), July.
    15. Mullen, John & Keogh, Mick, 2013. "The Future Productivity and Competitiveness Challenge for Australian Agriculture," 2013 Conference (57th), February 5-8, 2013, Sydney, Australia 152170, Australian Agricultural and Resource Economics Society.
    16. Gomez-Limon, Jose A. & Arriaza, Manuel & Riesgo, Laura, 2003. "An MCDM analysis of agricultural risk aversion," European Journal of Operational Research, Elsevier, vol. 151(3), pages 569-585, December.
    17. Flaten, Ola & Lien, Gudbrand D., 2005. "Stochastic Utility-Efficient Programming of Organic Dairy Farms," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24743, European Association of Agricultural Economists.
    18. Rose, G. & Mulder, H.A. & Thompson, A.N. & van der Werf, J.H.J. & van Arendonk, J.A.M., 2014. "Varying pasture growth and commodity prices change the value of traits in sheep breeding objectives," Agricultural Systems, Elsevier, vol. 131(C), pages 94-104.
    19. Kingwell, Ross S. & Farré, Imma, 2009. "Climate change impacts on investment in crop sowing machinery," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(2), pages 1-20.
    20. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Revisiting N fertilisation rates in low-rainfall grain cropping regions of Australia: A risk analysis," 2012 Conference (56th), February 7-10, 2012, Fremantle, Australia 124339, Australian Agricultural and Resource Economics Society.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aareaj:245954. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaresea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.