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Risk, Utility and the Value of Information in Farmer Decision Making

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  • Byerlee, Derek R.
  • Anderson, Jock R.

Abstract

A model is developed from decision theory for evaluating probabilistic information, especially for decision makers who are risk averse. The value of information to such a decision maker is disaggregated into mean and variance effects. It is shown that the degree of risk aversion of the decision maker may have important effects on the value attached to the information; however, there is not necessarily a positive correlation between risk aversion and the value of information, since the decision to acquire new information is itself often a risky decision. The concepts and procedures are illustrated by application to a fodder conservation decision with rainfall forecast information.

Suggested Citation

  • Byerlee, Derek R. & Anderson, Jock R., 1982. "Risk, Utility and the Value of Information in Farmer Decision Making," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 50(03), pages 1-16, December.
    • Handle: RePEc:ags:remaae:12524
    DOI: 10.22004/ag.econ.12524
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    References listed on IDEAS

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    Cited by:

    1. Mkondiwa, Maxwell Gibson, 2015. "Whither Broad or Spatially Specific Fertilizer Recommendations?," Master's Theses and Plan B Papers 237344, University of Minnesota, Department of Applied Economics.
    2. Williams, John & Malcolm, Bill, 2012. "Farmer decisions about selling wheat and managing wheat price risk in Australia," Australasian Agribusiness Review, University of Melbourne, Department of Agriculture and Food Systems, vol. 20, pages 1-10.
    3. Petersen, E. H. & Fraser, R. W., 2001. "An assessment of the value of seasonal forecasting technology for Western Australian farmers," Agricultural Systems, Elsevier, vol. 70(1), pages 259-274, October.
    4. Bosch, Darrell & Eidman, Vernon, 1985. "The Value Of Soil Water And Weather Information In Increasing Irrigation Efficiency," Regional Research Projects > 1985: S-180 Annual Meeting, March 24-27, 1985, Charleston, South Carolina 271806, Regional Research Projects > S-180: An Economic Analysis of Risk Management Strategies for Agricultural Production Firms.
    5. Goh, Siew & Shih, Chao-Chyuan & Cochran, Mark J. & Raskin, Rob, 1989. "A Generalized Stochastic Dominance Program For The Ibm Pc," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 21(2), pages 1-8, December.
    6. John W. Ritchie & G. Yahya Abawi & Sunil C. Dutta & Trevor R. Harris & Michael Bange, 2004. "Risk management strategies using seasonal climate forecasting in irrigated cotton production: a tale of stochastic dominance," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(1), pages 65-93, March.
    7. Scott M. Swinton & Robert P. King, 1994. "The Value of Pest Information in a Dynamic Setting: The Case of Weed Control," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(1), pages 36-46.
    8. Lybbert, Travis J. & Magnan, Nicholas & Gubler, W. Douglas, 2012. "Multi-Dimensional Responses to Risk Information: How do Winegrape Growers Respond to Disease Forecasts and to What Environmental Effect?," Working Papers 162521, Robert Mondavi Institute Center for Wine Economics.
    9. Abedullah & Sushil Pandey, 2007. "The Value of Rainfall Forecasts in the Rainfed Rice Areas of the Philippines," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 12(2), pages 69-81, Jul-Dec.
    10. Meinke, H. & Baethgen, W. E. & Carberry, P. S. & Donatelli, M. & Hammer, G. L. & Selvaraju, R. & Stockle, C. O., 2001. "Increasing profits and reducing risks in crop production using participatory systems simulation approaches," Agricultural Systems, Elsevier, vol. 70(2-3), pages 493-513.
    11. Lindner, Robert K., 1987. "Toward A Framework For Evaluating Agricultural Economics Research," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 31(2), pages 1-17, August.
    12. Regmi, Anita, 1990. "The value of information in integrated pest management of corn rootworm and European corn borer in Minnesota," Faculty and Alumni Dissertations 307267, University of Minnesota, Department of Applied Economics.
    13. Aritri Chakravarty, 2022. "Impact of Information on Technical Efficiency of Agricultural Production in India," BASE University Working Papers 14/2022, BASE University, Bengaluru, India.
    14. Marshall, Graham R. & Parton, Kevin A. & Hammer, G.L., 1996. "Risk Attitude, Planting Conditions And The Value Of Seasonal Forecasts To A Dryland Wheat Grower," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 40(3), pages 1-23, December.
    15. Anderson, Jock R., 1997. "Policy and Management Work within International Agricultural Research," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 41(4), pages 1-19.
    16. Taylor, Christopher W., 2012. "Market Reactions to USDA Reports: State Analysis of Corn Price Response," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124661, Agricultural and Applied Economics Association.
    17. Ritchie, John W. & Abawi, G. Yahya & Dutta, Sunil C. & Harris, Trevor R. & Bange, Michael, 2004. "Risk management strategies using seasonal climate forecasting in irrigated cotton production: a tale of stochastic dominance," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(1), pages 1-29.
    18. Lindner, Bob, 1987. "Toward A Framework for Evaluating Agricultural Economics Research," Discussion Papers 315419, University of Western Australia, School of Agricultural and Resource Economics.
    19. Anderson, Jock R. & Dillon, John L. & Hardaker, J. Brian, 1985. "Farmers and Risk," 1985 Conference, August 26-September 4, 1985, Malaga, Spain 183026, International Association of Agricultural Economists.
    20. McFadden, Brandon R. & Lusk, Jayson L., 2015. "Cognitive biases in the assimilation of scientific information on global warming and genetically modified food," Food Policy, Elsevier, vol. 54(C), pages 35-43.
    21. Hildebrand, Q. L. & Ortmann, G. F., 1994. "Use Of Information And Computers By Eastern Cape Dairy Farmers," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 33(2), June.

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    Keywords

    Farm Management; Risk and Uncertainty;

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