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The Role of Farmers' Risk aversion for Contract Choice in the US Hog Industry

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Author Info

  • Zheng Xiaoyong

    (North Carolina State University)

  • Vukina Tomislav

    (North Carolina State University)

  • Shin Changmock

    (Samsung Economic Research Institute)

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    Abstract

    In this paper we estimate the farmers' side welfare effects of a hypothetical regulatory scenario that would partially eliminate production contracts in the hog industry. Using the Agricultural Resource Management Survey (ARMS) data for 2004, farmers' production costs under different marketing arrangements are estimated and then used to recover their individual risk aversion parameters with the help of a structural expected profit maximization model. The results show that farmers who use production contracts are more risk averse than farmers who use spot markets or marketing contracts. The regulation that forces producers to market their hogs in a riskier marketing channel relative to the channel they themselves selected imposes large welfare losses on the affected farmers.

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    Bibliographic Info

    Article provided by De Gruyter in its journal Journal of Agricultural & Food Industrial Organization.

    Volume (Year): 6 (2008)
    Issue (Month): 1 (June)
    Pages: 1-22

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    Handle: RePEc:bpj:bjafio:v:6:y:2008:i:1:n:4

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    Web page: http://www.degruyter.com

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    Web: http://www.degruyter.com/view/j/jafio

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    Cited by:
    1. Niemi, Jarkko K., 2012. "Designing coordination contracts to support efficient flow-scheduling in pork chain," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125208, Agricultural and Applied Economics Association.

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