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Environmental good production in the optimum activities portfolio of a risk averse-farmer

Author

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  • Havlik, Peter
  • Enjolras, Geoffroy
  • Boisson, Jean-Marie
  • Jacquet, Florence
  • Lherm, Michel
  • Veysset, Patrick

Abstract

An analytical framework is proposed for analysis of environmental good production by farmers in the case of price uncertainty. Environmental good production contracted by means of agri-environmental agreements is treated as a riskless option in the farmer’s production activities portfolio. It is shown that agri-environmental agreements aiming at biodiversity competing with beef production are likely to increase management intensity on the non-enrolled land, and that the effect of the payments for these agreements on the number of hectares enrolled is ambiguous. It is also demonstrated that an increase in the output price variability and/or a decrease in the level of decoupled subsidies will induce an increase (decrease) in the area enrolled in agreements aiming at biodiversity competing with (complementary to) beef production. The obtained results are illustrated by means of efficient frontiers generated using mathematical programming farm level models of suckler cow farms in Monts du Cantal, in France.
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Suggested Citation

  • Havlik, Peter & Enjolras, Geoffroy & Boisson, Jean-Marie & Jacquet, Florence & Lherm, Michel & Veysset, Patrick, 2008. "Environmental good production in the optimum activities portfolio of a risk averse-farmer," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement (RAEStud), Institut National de la Recherche Agronomique (INRA), vol. 86(1).
    • Handle: RePEc:ags:frraes:188543
    DOI: 10.22004/ag.econ.188543
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    References listed on IDEAS

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    1. S. R. Johnson, 1967. "A Re-examination of the Farm Diversification Problem," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 49(3), pages 610-621.
    2. David A. Hennessy, 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 46-57.
    3. Atanu Saha & C. Richard Shumway & Hovav Talpaz, 1994. "Joint Estimation of Risk Preference Structure and Technology Using Expo-Power Utility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(2), pages 173-184.
    4. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," Review of Economic Studies, Oxford University Press, vol. 25(2), pages 65-86.
    5. Teresa Serra & David Zilberman & Barry K. Goodwin & Allen Featherstone, 2006. "Effects of decoupling on the mean and variability of output," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 33(3), pages 269-288, September.
    6. Petr Havlík & Patrick Veysset & Jean-Marie Boisson & Michel Lherm & Florence Jacquet, 2005. "Joint production under uncertainty and multifunctionality of agriculture: policy considerations and applied analysis," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(4), pages 489-515, December.
    7. Maurice J. Roche, 2004. "Riskier product portfolio under decoupled payments," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(2), pages 111-123, June.
    8. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
    9. Howard D. Leathers & John C. Quiggin, 1991. "Interactions between Agricultural and Resource Policy: The Importance of Attitudes toward Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 757-764.
    10. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-335, May.
    11. Ormiston, Michael B & Schlee, Edward E, 2001. "Mean-Variance Preferences and Investor Behaviour," Economic Journal, Royal Economic Society, vol. 111(474), pages 849-861, October.
    12. Nick Hanley & David Oglethorpe, 1999. "Emerging Policies on Externalities from Agriculture: An Analysis for the European Union," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(5), pages 1222-1227.
    13. Veysset, P. & Bebin, D. & Lherm, M., 2005. "Adaptation to Agenda 2000 (CAP reform) and optimisation of the farming system of French suckler cattle farms in the Charolais area: a model-based study," Agricultural Systems, Elsevier, vol. 83(2), pages 179-202, February.
    14. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
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    Cited by:

    1. Ridier, Aude & Ben El Ghali, Mohamed & Nguyen, G. & Kephaliacos, Charilaos, 2013. "The role of risk aversion and labor constraints in the adoption of low input practices supported by the CAP green payments in cash crop farms," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement (RAEStud), Institut National de la Recherche Agronomique (INRA), vol. 94(2).
    2. Knoke, Thomas & Paul, Carola & Härtl, Fabian & Castro, Luz Maria & Calvas, Baltazar & Hildebrandt, Patrick, 2015. "Optimizing agricultural land-use portfolios with scarce data—A non-stochastic model," Ecological Economics, Elsevier, vol. 120(C), pages 250-259.

    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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