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Environmental good production in the optimum activities portfolio of a risk averse-farmer

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  • Petr Havlik

    ()
    (International Institute for Applied Systems Analysis (IIASA), Forestry Program, Schlossplatz 1, A-2361 Laxenburg, Autriche)

  • Geoffroy Enjolras

    (UMR LAMETA, Faculté d’Administration et Gestion, Université de Montpellier 1)

  • Jean-Marie Boisson

    (UMR LAMETA, Faculté d’Administration et Gestion, Université de Montpellier 1)

  • Florence Jacquet

    (INRA - UMR Economie publique, Grignon)

  • Michel Lherm

    (INRA, UR506 Laboratoire d’économie de l’élevage, Clermont Ferrand-Theix)

  • Patrick Veysset

    (INRA, UR506 Laboratoire d’économie de l’élevage, Clermont Ferrand-Theix)

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 riskless option in the farmer’s production activities portfolio. It is shown that agri-environmental agreements aiming at biodiversity competing with beef production are likely to increase management intensity on the non-enrolled land, and that the effect of the payments for these agreements on the number of hectares enrolled is ambiguous. It is also demonstrated that an increase in the output price variability and/or a decrease in the level of decoupled subsidies will induce an increase (decrease) in the area enrolled in agreements aiming at biodiversity competing with (complementary to) beef production. The obtained results are illustrated by means of efficient frontiers generated using mathematical programming farm level models of suckler cow farms in Monts du Cantal, in France.

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Bibliographic Info

Article provided by INRA Department of Economics in its journal Review of Agricultural and Environmental Studies.

Volume (Year): 86 (2008)
Issue (Month): 1 ()
Pages: 9-33

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Handle: RePEc:rae:jourae:v:86:y:2008:i:1:p:9-33

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Keywords: uncertainty; portfolio optimisation; biodiversity; agricultural policy; mathematical programming;

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  1. Teresa Serra & David Zilberman & Barry K. Goodwin & Allen Featherstone, 2006. "Effects of decoupling on the mean and variability of output," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 33(3), pages 269-288, September.
  2. Veysset, P. & Bebin, D. & Lherm, M., 2005. "Adaptation to Agenda 2000 (CAP reform) and optimisation of the farming system of French suckler cattle farms in the Charolais area: a model-based study," Agricultural Systems, Elsevier, vol. 83(2), pages 179-202, February.
  3. David A. Hennessy, 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 46-57.
  4. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
  5. Lins, David A. & Gabriel, Stephen C. & Sonka, Steven T., 1981. "An Analysis Of The Risk Aversion Of Farm Operators: An Asset Portfolio Approach," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 6(01), July.
  6. Maurice J. Roche, 2004. "Riskier product portfolio under decoupled payments," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(2), pages 111-123, June.
  7. Petr Havlík & Patrick Veysset & Jean-Marie Boisson & Michel Lherm & Florence Jacquet, 2005. "Joint production under uncertainty and multifunctionality of agriculture: policy considerations and applied analysis," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(4), pages 489-515, December.
  8. Ormiston, Michael B & Schlee, Edward E, 2001. "Mean-Variance Preferences and Investor Behaviour," Economic Journal, Royal Economic Society, vol. 111(474), pages 849-61, October.
  9. Nick Hanley & David Oglethorpe, 1999. "Emerging Policies on Externalities from Agriculture: An Analysis for the European Union," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(5), pages 1222-1227.
  10. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-35, May.
  11. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June.
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