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Positive Mathematical Programming with Generalized Risk: A Revision

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  • Paris, Quirino

Abstract

In 1956, Freund introduced the analysis of price risk in a mathematical programming framework. This paper generalizes the treatment of price risk preferences in a mathematical programming framework along the lines suggested by Meyer (1987) who demonstrated the equivalence of expected utility and a wide class of probability distributions that differ only by location and scale. This paper shows how to formulate a Positive Mathematical Programming (PMP) specification that allows the estimation of the risk preference parameters and calibrates the model to the base data within admissible small deviations. The PMP approach under generalized risk allows also the estimation of output supply elasticities and the response analysis of decoupled farm subsidies that, recently, has interested policy makers. The approach is applied to a sample of large farms. Not all farms produce all commodities.

Suggested Citation

  • Paris, Quirino, 2015. "Positive Mathematical Programming with Generalized Risk: A Revision," Working Papers 202865, University of California, Davis, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucdavw:202865
    DOI: 10.22004/ag.econ.202865
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    File URL: https://ageconsearch.umn.edu/record/202865/files/PMP_Generalized%20Risk%20April%202015.pdf
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    References listed on IDEAS

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    1. P. B. R. Hazell, 1971. "A Linear Alternative to Quadratic and Semivariance Programming for Farm Planning under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 53(1), pages 53-62.
    2. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    3. P. B. R. Hazell, 1971. "A Linear Alternative to Quadratic and Semivariance Programming for Farm Planning under Uncertainty: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 53(4), pages 664-665.
    4. Saha, Atanu, 1997. "Risk Preference Estimation in the Nonlinear Mean Standard Deviation Approach," Economic Inquiry, Western Economic Association International, vol. 35(4), pages 770-782, October.
    5. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
    6. Richard E. Howitt, 1995. "A Calibration Method For Agricultural Economic Production Models," Journal of Agricultural Economics, Wiley Blackwell, vol. 46(2), pages 147-159, May.
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    Keywords

    Demand and Price Analysis; Productivity Analysis; Risk and Uncertainty;
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