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Producers' complex risk management choices

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Author Info

  • Joost M.E. Pennings

    (Department of Marketing, Department of Finance, Maastricht University, Tongersestraat 53, 6211 LM, Maastricht, The Netherlands; University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics, 326 Mumford Hall, MC-710, 1301 West Gregory Drive, Urbana, Illinois 61801; and Marketing & Consumer Behavior Group, Wageningen University, Hollandseweg 1, 6706 KN Wageningen, The Netherlands)

  • Olga Isengildina-Massa

    (Department of Applied Economics and Statistics, Clemson University, 295 Barre Hall, Box 340313, Clemson, SC 29634-0313)

  • Scott H. Irwin

    (Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, 326 Mumford Hall, MC-710, 1301 West Gregory Drive, Urbana, Illinois 61801)

  • Philip Garcia

    (Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, 326 Mumford Hall, MC-710, 1301 West Gregory Drive, Urbana, Illinois 61801)

  • Darrel L. Good

    (Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, 326 Mumford Hall, MC-710, 1301 West Gregory Drive, Urbana, Illinois 61801)

Abstract

Producers have a wide variety of risk management instruments available, making their choice(s) complex. The way producers deal with this complexity can vary and may influence the impact that the determinants, such as risk aversion, have on their choices. A recently developed choice bracketing framework recognizes that producers are unable to evaluate all alternatives simultaneously and that to manage a complex task, they often group or bracket individual alternatives and their consequences together in choice sets. Data on 1,105 U.S. producers show that producers do not use all available combinations of risk management tools and that the influence of the determinants of producer's risk management decisions are not necessarily the same across risk management strategies within and across bracketing levels. The findings may help resolve puzzling results on the role that well-known determinants of risk management behavior have on producers' choices, extending knowledge on producers' risk management behavior. Further, the findings have managerial implications for policy makers and agribusiness companies that provide risk management services. [EconLit citations: M000, G1000, Q130] © 2008 Wiley-Liss, Inc.

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File URL: http://hdl.handle.net/10.1002/agr.20145
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 24 (2008)
Issue (Month): 1 ()
Pages: 31-54

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Handle: RePEc:wly:agribz:v:24:y:2008:i:1:p:31-54

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Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Isengildina, Olga & Pennings, Joost M.E. & Irwin, Scott H. & Good, Darrel L., 2004. "Crop Farmers’ Use of Market Advisory Services," AgMAS Project Research Reports 37489, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
  2. Pennings, Joost M.E. & Isengildina, Olga & Irwin, Scott H. & Good, Darrel L., 2004. "The Impact Of Marketing Advisory Service Recommendations On Producers' Marketing Decisions," 2004 Annual meeting, August 1-4, Denver, CO 20389, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Joost M.E. Pennings & Philip Garcia, 2001. "Measuring Producers' Risk Preferences: A Global Risk-Attitude Construct," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 993-1009.
  4. Pennings, Joost M. E. & M. Leuthold, Raymond, 2001. "Introducing new futures contracts: reinforcement versus cannibalism," Journal of International Money and Finance, Elsevier, vol. 20(5), pages 659-675, October.
  5. Pennings, Joost M.E. & Isengildina, Olga & Irwin, Scott H. & Good, Darrel L., 2004. "The Impact of Market Advisory Service Recommendations on Producers' Marketing Decisions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(02), August.
  6. McFadden, Daniel, 1999. "Rationality for Economists?," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 73-105, December.
  7. Coble, Keith H. & Heifner, Richard G. & Zuniga, Manuel, 2000. "Implications Of Crop Yield And Revenue Insurance For Producer Hedging," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(02), December.
  8. Huffman, Wallace & Mercier, S., 1991. "Joint Adoption of Microcomputer Technologies: An Analysis of Farmers' Decisions," Staff General Research Papers 10989, Iowa State University, Department of Economics.
  9. Schroeder, Ted C. & Parcell, Joseph L. & Kastens, Terry L. & Dhuyvetter, Kevin C., 1998. "Perceptions Of Marketing Strategies: Producers Versus Extension Economists," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(01), July.
  10. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  11. Richard H. Thaler, 2000. "From Homo Economicus to Homo Sapiens," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 133-141, Winter.
  12. Joost M.E. Pennings & Raymond M. Leuthold, 2000. "The Role of Farmers' Behavioral Attitudes and Heterogeneity in Futures Contracts Usage," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 908-919.
  13. Ani L. Katchova & Mario J. Miranda, 2004. "Two-Step Econometric Estimation of Farm Characteristics Affecting Marketing Contract Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 88-102.
  14. Pennings, Joost M. E. & Garcia, Philip, 2004. "Hedging behavior in small and medium-sized enterprises: The role of unobserved heterogeneity," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 951-978, May.
  15. Davis, Todd D. & Patrick, George F., 2000. "Forward Marketing Behavior Of Soybean Producers," 2000 Annual meeting, July 30-August 2, Tampa, FL 21822, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  16. Matthew Rabin & Richard H. Thaler, 2001. "Anomalies: Risk Aversion," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 219-232, Winter.
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Citations

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Cited by:
  1. Hoffmann, Arvid O.I. & Pennings, Joost M.E., 2008. "Shareholder Activism and the Role of Marketing: A Framework for Analyzing and Managing Investor Relations," Research Memorandum 007, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. Larsen, Ryan A. & Vedenov, Dmitry V. & Leatham, David J., 2009. "Enterprise-level risk assessment of geographically diversified commercial farms: a copula approach," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46763, Southern Agricultural Economics Association.

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