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The Role of Farmers' Risk aversion for Contract Choice in the US Hog Industry

Author

Listed:
  • Zheng Xiaoyong

    (North Carolina State University)

  • Vukina Tomislav

    (North Carolina State University)

  • Shin Changmock

    (Samsung Economic Research Institute)

Abstract

In this paper we estimate the farmers' side welfare effects of a hypothetical regulatory scenario that would partially eliminate production contracts in the hog industry. Using the Agricultural Resource Management Survey (ARMS) data for 2004, farmers' production costs under different marketing arrangements are estimated and then used to recover their individual risk aversion parameters with the help of a structural expected profit maximization model. The results show that farmers who use production contracts are more risk averse than farmers who use spot markets or marketing contracts. The regulation that forces producers to market their hogs in a riskier marketing channel relative to the channel they themselves selected imposes large welfare losses on the affected farmers.

Suggested Citation

  • Zheng Xiaoyong & Vukina Tomislav & Shin Changmock, 2008. "The Role of Farmers' Risk aversion for Contract Choice in the US Hog Industry," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 6(1), pages 1-22, June.
    • Handle: RePEc:bpj:bjafio:v:6:y:2008:i:1:n:4
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    Citations

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    Cited by:

    1. Azzeddine Azzam & Gibson Nene & Karina Schoengold, 2015. "Hog Industry Structure and the Stringency of Environmental Regulation," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 63(3), pages 333-358, September.
    2. Niemi, Jarkko K., 2012. "Designing coordination contracts to support efficient flow-scheduling in pork chain," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125208, Agricultural and Applied Economics Association.
    3. Franken, Jason R.V. & Pennings, Joost M.E. & Garcia, Philip, 2009. "Do Transaction Costs and Risk Preferences Influence Marketing Arrangements in the Illinois Hog Industry?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(2), August.
    4. Jensen, Kimberly L. & English, Burton C. & Clark, Christopher D. & Menard, R. Jamey, 2011. "Preferences for Marketing Arrangements by Potential Switchgrass Growers," Journal of Cooperatives, NCERA-210, vol. 25.
    5. Paulson Nicholas D & Katchova Ani L & Lence Sergio H, 2010. "An Empirical Analysis of the Determinants of Marketing Contract Structures for Corn and Soybeans," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 8(1), pages 1-25, May.
    6. Niemi, Jarkko K. & Liu, Xing & Pietola, Kyosti, 2011. "Price volatility and return on pig fattening under different price- quantity contract regimes," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114614, European Association of Agricultural Economists.
    7. Hu, Wu-Yueh & Vukina, Tomislav & Zheng, Viaoyong, 2014. "The Role of Risk and Risk-Aversion in Adoption of Alternative Marketing Arrangements by the U.S. Farmers," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 168930, Agricultural and Applied Economics Association.

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