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Farm-level Acreage Allocation under Risk

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  • Polome, Philippe
  • Harmignie, Olivier
  • Frahan, Bruno Henry de

Abstract

We model the area allocation decision problem for a fixed size crop farm under random yields and prices for a risk-averse farmer. We assume that in the short run, the variable input expenses are fixed per hectare and per crop (an assumption that is motivated by our data). Therefore the cost function depends only on the non-stochastic area allocation. The first order conditions of the model involve integrals across functions of random variables that do not in general have closed form solutions. Numerical simulation techniques are used to calibrate the parameters of the cost function. The two sources of randomness, price and yield, are combined into a single random variable, the yield-in-value. Based on examination of panels of yield-in-value data, we assume independence across the yield-in-value distributions and that the farmers know these distributions. We have modeled the sugar quota constraint, the Common Agricultural Policy subsidies and set-aside, and one Agri-Environmental Measure called “"buffer zone"”.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21306.

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Date of creation: 2006
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Handle: RePEc:ags:aaea06:21306

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Keywords: Risk and Uncertainty;

References

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  1. Pope, Rulon D. & Just, Richard E., 1996. "Empirical implementation of ex ante cost functions," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 231-249.
  2. Rulon D. Pope, 2003. "Agricultural Risk Analysis: Adequacy of Models, Data, and Issues," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1249-1256.
  3. Guyomard & Baudry & Carpentier, 1996. "Estimating crop supply response in the presence of farm programmes : application to the CAP," Working Papers 153134, Institut National de la Recherche Agronomique, France.
  4. GianCarlo Moschini, 2000. "Production Risk and the Estimation of Ex Ante Cost Functions," Center for Agricultural and Rural Development (CARD) Publications 00-wp262, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  5. Binswanger, Hans P, 1981. "Attitudes toward Risk: Theoretical Implications of an Experiment in Rural India," Economic Journal, Royal Economic Society, vol. 91(364), pages 867-90, December.
  6. Moschini, Giancarlo & Hennessy, David A., 2001. "Uncertainty, risk aversion, and risk management for agricultural producers," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 2, pages 88-153 Elsevier.
  7. repec:feb:artefa:0008 is not listed on IDEAS
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