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Quantifying Gains To Risk Diversification Using Certainty Equivalence In A Mean-Variance Model: An Application To Florida Citrus

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  • Featherstone, Allen M.
  • Moss, Charles B.

Abstract

The marginal benefit and cost of diversification for Florida orange producers is analyzed using certainty equivalents. Results indicate that for moderate and high levels of risk aversion, diversification into strawberry, grapefruit, or additional orange production is not optimal. However, moderately risk averse Florida orange producers can gain by diversifying into grapefruit production if the annual amortized fixed costs can be reduced by as little as 10 percent.

Suggested Citation

  • Featherstone, Allen M. & Moss, Charles B., 1990. "Quantifying Gains To Risk Diversification Using Certainty Equivalence In A Mean-Variance Model: An Application To Florida Citrus," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 22(2), pages 191-197, December.
    • Handle: RePEc:cup:jagaec:v:22:y:1990:i:02:p:191-197_00
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    1. Adams, Richard M. & Menkhaus, Dale J. & Woolery, Bruce A., 1980. "Alternative Parameter Specification In E, V Analysis: Implications For Farm Level Decision Making," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 5(01), pages 1-8, July.
    2. Raskin, Rob & Cochran, Mark J., 1986. "Interpretations And Transformations Of Scale For The Pratt-Arrow Absolute Risk Aversion Coefficient: Implications For Generalized Stochastic Dominance," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 11(2), pages 1-7, December.
    3. Anderson, Jock R. & Dillon, John L. & Hardaker, Brian, 1977. "Agricultural Decision Analysis," Monographs: Applied Economics, AgEcon Search, number 288652, October.
    4. Anderson, Jock R. & Feder, Gershon, 2007. "Agricultural Extension," Handbook of Agricultural Economics, in: Robert Evenson & Prabhu Pingali (ed.), Handbook of Agricultural Economics, edition 1, volume 3, chapter 44, pages 2343-2378, Elsevier.
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    1. Lindbloom, Michael B. & Shanoyan, Aleksan & Griffin, Terry W., 2017. "Farm Diversification as an Adaptive Capability: Examining the Resilience of Kansas Farms," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258454, Agricultural and Applied Economics Association.
    2. Lindsey, Jeanne K. & Duffy, Patricia A. & Nelson, Robert G. & Ebel, Robert C. & Dozier, William A., 2009. "Evaluation of Risk Management Methods for Satsuma Mandarin," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46754, Southern Agricultural Economics Association.
    3. Chien, Ming-Che & Leatham, David J., 1994. "The Value Of Planting Flexibility Provisions In The 1990 Farm Bill To Three Representative Texas Farms," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 26(01), pages 1-10, July.
    4. Guvele, C. A., 2001. "Gains from crop diversification in the Sudan Gezira scheme," Agricultural Systems, Elsevier, vol. 70(1), pages 319-333, October.
    5. Hildebrandt, Patrick & Knoke, Thomas, 2011. "Investment decisions under uncertainty--A methodological review on forest science studies," Forest Policy and Economics, Elsevier, vol. 13(1), pages 1-15, January.

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