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Producers' complex risk management choices

Author

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  • 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.

Suggested Citation

  • Joost M.E. Pennings & Olga Isengildina-Massa & Scott H. Irwin & Philip Garcia & Darrel L. Good, 2008. "Producers' complex risk management choices," Agribusiness, John Wiley & Sons, Ltd., vol. 24(1), pages 31-54.
    • Handle: RePEc:wly:agribz:v:24:y:2008:i:1:p:31-54
    DOI: 10.1002/agr.20145
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    Cited by:

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    2. Hoffmann, A.O.I. & Pennings, J.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).
    3. Nchanji, Eileen Bogweh & Nchanji, Yvonne Kiki, 2022. "Urban farmers coping strategies in the wake of urbanization and changing market in Tamale, Northern Ghana," Land Use Policy, Elsevier, vol. 121(C).
    4. Muhammad Amjed Iqbal & Azhar Abbas & Syed Asif Ali Naqvi & Muhammad Rizwan & Abdus Samie & Umar Ijaz Ahmed, 2020. "Drivers of Farm Households’ Perceived Risk Sources and Factors Affecting Uptake of Mitigation Strategies in Punjab Pakistan: Implications for Sustainable Agriculture," Sustainability, MDPI, vol. 12(23), pages 1-17, November.
    5. Aymeric Ricome & Arnaud Reynaud, 2022. "Marketing contract choices in agriculture: The role of price expectation and price risk management," Agricultural Economics, International Association of Agricultural Economists, vol. 53(1), pages 170-186, January.
    6. Frasa, Stefanie & Carlberg, Jared & Hogan, Robert, 2015. "Use of Contracts by Prairie Agricultural Producers," Working Papers 232328, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
    7. Caroline Roussy & Aude Ridier & Karim Chaib & Marie Boyet, 2018. "Marketing contracts and risk management for cereal producers," Agribusiness, John Wiley & Sons, Ltd., vol. 34(3), pages 616-630, June.
    8. Jason Loughrey & Fiona Thorne & Thia Hennessy, 2016. "A Microsimulation Model for Risk in Irish Tillage Farming," International Journal of Microsimulation, International Microsimulation Association, vol. 9(2), pages 41-76.
    9. 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.
    10. Leppälä, Jarkko & Rautiainen, Risto & Kauranen, Ilkka, 2015. "Analysis of risk management tools applicable in managing farm risks: A literature review," International Journal of Agricultural Management, Institute of Agricultural Management, vol. 4(3), April.
    11. Mbonane, Nobuhle Duduzile, 2018. "An analysis of farmers’ preferences for crop insurance: a case of maize farmers in Swaziland," Research Theses 334771, Collaborative Masters Program in Agricultural and Applied Economics.

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