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Are we risking too much? Perspectives on risk in farm modelling

  • Pannell, David J.
  • Malcolm, Bill
  • Kingwell, Ross S.

Risk and uncertainty have been extensively studied by agricultural economists. In this paper we question (a) the predominant use of static frameworks to formally analyse risk; (b) the predominant focus on risk aversion as the motivation for considering risk and (c) the notion that explicitly probabilistic models are likely to be helpful to farmers in their decision making. We pose the question: for a risk-averse farmer, what is the extra value of a recommendation derived from a model that represents risk aversion, compared to a model based on risk neutrality? The conclusion reached is that for the types of the decision problems most commonly modelled by agricultural economists, the extra value of representing risk aversion is commonly very little. © 2000 Elsevier Science B.V. All rights reserved.

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Article provided by Blackwell in its journal Agricultural Economics.

Volume (Year): 23 (2000)
Issue (Month): 1 (June)
Pages: 69-78

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Handle: RePEc:eee:agecon:v:23:y:2000:i:1:p:69-78
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  1. Anderson, Jock R., 1982. "Agricultural Economics, Interdependence And Uncertainty," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 26(02), August.
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  7. Morrison, David A. & Kingwell, Ross S. & Pannell, David J. & Ewing, Michael A., 1986. "A mathematical programming model of a crop-livestock farm system," Agricultural Systems, Elsevier, vol. 20(4), pages 243-268.
  8. Kingwell, Ross S. & Pannell, David J. & Robinson, Stephen D., 1993. "Tactical responses to seasonal conditions in whole-farm planning in Western Australia," Agricultural Economics, Blackwell, vol. 8(3), pages 211-226, March.
  9. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
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  13. Pannell, David J. & Nordblom, Thomas L., 1998. "Impacts of risk aversion on whole-farm management in Syria," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 42(3), September.
  14. J. K. Horowitz & E. Lichtenberg, 1994. "Risk-Reducing And Risk-Increasing Effects Of Pesticides," Journal of Agricultural Economics, Wiley Blackwell, vol. 45(1), pages 82-89.
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  17. Hardaker, J. Brian & Patten, Louise H. & Pannell, David J., 1988. "Utility-Efficient Programming For Whole-Farm Planning," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 32(02-03).
  18. Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments 00009, The Field Experiments Website.
  19. Hardaker, J. Brian & Pandey, Sushil & Patten, Louise H., 1991. "Farm Planning under Uncertainty: A Review of Alternative Programming Models," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 59(01), April.
  20. Mark J Machina, 1982. ""Expected Utility" Analysis without the Independence Axiom," Levine's Working Paper Archive 7650, David K. Levine.
  21. Kingwell, Ross, 1996. "Programming models of farm supply response: The impact of specification errors," Agricultural Systems, Elsevier, vol. 50(3), pages 307-324.
  22. Pannell, David J., 1997. "Sensitivity analysis of normative economic models: theoretical framework and practical strategies," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 16(2), May.
  23. Buschena, David E. & Zilberman, David, 1994. "What Do We Know About Decision Making Under Risk And Where Do We Go From Here?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(02), December.
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  25. Fraser, Rob, 1994. "The Impact of Price Support on Set-Aside Responses to an Increase in Price Uncertainty," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 21(1), pages 131-36.
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