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Risk, Utility and the Value of Information in Farmer Decision Making

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  • Byerlee, Derek R.
  • Anderson, Jock R.

Abstract

A model is developed from decision theory for evaluating probabilistic information, especially for decision makers who are risk averse. The value of information to such a decision maker is disaggregated into mean and variance effects. It is shown that the degree of risk aversion of the decision maker may have important effects on the value attached to the information; however, there is not necessarily a positive correlation between risk aversion and the value of information, since the decision to acquire new information is itself often a risky decision. The concepts and procedures are illustrated by application to a fodder conservation decision with rainfall forecast information.

Suggested Citation

  • Byerlee, Derek R. & Anderson, Jock R., 1982. "Risk, Utility and the Value of Information in Farmer Decision Making," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 50(03), December.
  • Handle: RePEc:ags:remaae:12524
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    References listed on IDEAS

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    1. Green, Jerry R, 1981. "Value of Information with Sequential Futures Markets," Econometrica, Econometric Society, vol. 49(2), pages 335-358, March.
    2. Robert E. Marks, 1980. "The Value of “Almost†Perfect Weather Information to the Australian Tertiary Sector," Australian Journal of Management, Australian School of Business, vol. 5(1-2), pages 67-85, April.
    3. Hayami, Yujiro & Peterson, Willis, 1972. "Social Returns to Public Information Services: Statistical Reporting of U. S. Farm Commodities," American Economic Review, American Economic Association, vol. 62(1), pages 119-130, March.
    4. R. K. Lindner & F. G. Jarrett, 1978. "Supply Shifts and the Size of Research Benefits," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 60(1), pages 48-58.
    5. Derek R. Byerlee & Jock R. Anderson, 1969. "Value Of Predictors Of Uncontrolled Factors In Response Functions," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 13(2), pages 118-127, December.
    6. Anderson, Jock R. & Feder, Gershon, 2007. "Agricultural Extension," Handbook of Agricultural Economics, Elsevier.
    7. R. R. Officer & A. N. Halter, 1968. "Utility Analysis in a Practical Setting," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 50(2), pages 257-277.
    8. John W. Freebairn, 1976. "Welfare Implications Of More Accurate Rational Forecast Prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 20(2), pages 92-102, August.
    9. David F. Bradford & Harry H. Kelejian, 1977. "The Value of Information for Crop Forecasting in a Market System: Some Theoretical Issues," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 519-531.
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    Citations

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    Cited by:

    1. Mkondiwa, Maxwell Gibson, 2015. "Whither Broad or Spatially Specific Fertilizer Recommendations?," Master's Theses 237344, University of Minnesota, Department of Applied Economics.
    2. Lybbert, Travis J. & Magnan, Nicholas & Gubler, W. Douglas, 2012. "Multi-Dimensional Responses to Risk Information: How do Winegrape Growers Respond to Disease Forecasts and to What Environmental Effect?," Working Papers 162521, Robert Mondavi Institute Center for Wine Economics.
    3. Williams, John & Malcolm, Bill, 2012. "Farmer decisions about selling wheat and managing wheat price risk in Australia," Australasian Agribusiness Review, University of Melbourne, Melbourne School of Land and Environment, vol. 20.
    4. Petersen, E. H. & Fraser, R. W., 2001. "An assessment of the value of seasonal forecasting technology for Western Australian farmers," Agricultural Systems, Elsevier, vol. 70(1), pages 259-274, October.
    5. Meinke, H. & Baethgen, W. E. & Carberry, P. S. & Donatelli, M. & Hammer, G. L. & Selvaraju, R. & Stockle, C. O., 2001. "Increasing profits and reducing risks in crop production using participatory systems simulation approaches," Agricultural Systems, Elsevier, vol. 70(2-3), pages 493-513.
    6. Graham R. Marshall & Kevin A. Parton & G.L. Hammer, 1996. "Risk Attitude, Planting Conditions And The Value Of Seasonal Forecasts To A Dryland Wheat Grower," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 40(3), pages 211-233, December.
    7. Pandey, Sushil, 1990. "Risk-Efficient Irrigation Strategies for Wheat," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 4(1), April.
    8. Lindner, Robert K., 1987. "Toward A Framework For Evaluating Agricultural Economics Research," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 31(02), August.
    9. Anderson, Jock R., 1997. "Policy and Management Work within International Agricultural Research," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 41(4), December.
    10. Goh, Siew & Shih, Chao-Chyuan & Cochran, Mark J. & Raskin, Rob, 1989. "A Generalized Stochastic Dominance Program For The Ibm Pc," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 21(02), December.
    11. Anderson, Jock R. & Dillon, John L. & Hardaker, J. Brian, 1985. "Farmers and Risk," 1985 Conference, August 26-September 4, 1985, Málaga, Spain 183026, International Association of Agricultural Economists.
    12. McFadden, Brandon R. & Lusk, Jayson L., 2015. "Cognitive biases in the assimilation of scientific information on global warming and genetically modified food," Food Policy, Elsevier, vol. 54(C), pages 35-43.
    13. Ritchie, John W. & Abawi, G. Yahya & Dutta, Sunil C. & Harris, Trevor R. & Bange, Michael, 2004. "Risk management strategies using seasonal climate forecasting in irrigated cotton production: a tale of stochastic dominance," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(1), March.

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    Keywords

    Farm Management; Risk and Uncertainty;

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