From total farm to household risk: implication for risk management
AbstractModeling the farm level impact of risk management programs, policies and instruments is traditionally been done on a farm-level basis. Hence, farm simulation models typically use the behavioural assumption of profit or utility maximization is risk aversion taken into account. However, abundant – albeit indirect – evidence from different literature sources suggest that minimization of household risk – being the chance of falling below a certain threshold level of household cash flow – might be more realistic behavioural assumption. In this paper, we present concepts of operational, financial, total farm and household risk. Further, using a stochastic simulation model on two typical Belgian dairy farms, we illustrate possible farmers responses in the presence or absence of farm income stabilization mechanisms. Although some limitations to the current model are mentioned, the results already suggests the usefulness of considering household risk when assessing the impact of risk management programs, policies and instruments.
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Bibliographic InfoPaper provided by European Association of Agricultural Economists in its series 123rd Seminar, February 23-24, 2012, Dublin, Ireland with number 122470.
Date of creation: 23 Feb 2012
Date of revision:
Household risk; typical dairy farms; stochastic simulation; household buffering capacity; Risk and Uncertainty;
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