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Do Farmers Hedge Optimally or by Habit? A Bayesian Partial-Adjustment Model of Farmer Hedging

Author

Listed:
  • Dorfman, Jeffrey H.
  • Karali, Berna

Abstract

Hedging is one of the most important risk management decisions that farmers make and has a potentially large role in the level of profit eventually earned from farming. Using panel data from a survey of Georgia farmers that recorded their hedging decisions for 4 years on four crops, we examine the role of habit, demographics, farm characteristics, and information sources on the hedging decisions made by 57 different farmers. We find that the role of habit varies widely and that estimation of a single habit effect suffers from aggregation bias. Thus, modeling farmer-level heterogeneity in the examination of habit and hedging is crucial.

Suggested Citation

  • Dorfman, Jeffrey H. & Karali, Berna, 2010. "Do Farmers Hedge Optimally or by Habit? A Bayesian Partial-Adjustment Model of Farmer Hedging," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 42(4), pages 1-13, November.
    • Handle: RePEc:ags:joaaec:100519
    DOI: 10.22004/ag.econ.100519
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    Cited by:

    1. Carrer, Marcelo José & Silveira, Rodrigo Lanna F. & Meirelles De Souza Filho, Hildo, "undated". "Citrus Producers' Choice of Price Risk Management Tools," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258352, Agricultural and Applied Economics Association.
    2. Bedek, Željka & Njavro, Mario, 2016. "Risks and Competitiveness in Agriculture with Emphasis on Wine Sector in Croatia," APSTRACT: Applied Studies in Agribusiness and Commerce, AGRIMBA, vol. 10(01), pages 1-8, March.

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    Keywords

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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