Sophisticated Program Planning Approaches Generate Large Benefits in High Risk Crop Farming
AbstractAgricultural production relies to a great extent on biological processes in natural environments. In addition to volatile prices, it is thus heavily exposed to risks caused by the variability of natural conditions such as rainfall, temperature and pests. With a view to the apparently lacking support of risky farm production program decisions through formal planning models, the objective of this paper is to examine whether, and eventually by how much, farmers’ “intuitive” program decisions can be improved through formal statistical analyses and stochastic optimization models. In this performance comparison, we use the results of the formal planning approach that are generated in a quasi ex-ante analysis as a normative benchmark for the empirically observed ones. To avoid benchmark solutions that would possibly exceed the respective farmer’s risk tolerance, we limit the formal search to a subset of solutions that are second- degree stochastically dominant compared to the farmer’s own decision. We furthermore compare the suitability of different statistical (time series) models to forecast the uncertainty of single gross margins.
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Bibliographic InfoPaper provided by Agricultural Economics Society in its series 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK with number 36865.
Date of creation: 30 Mar 2008
Date of revision:
stochastic optimization; stochastic processes; production risk; program planning; time series analysis; C1; C61; M11; Q12;
Find related papers by JEL classification:
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- M11 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Production Management
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
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