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

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

Abstract

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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  19. 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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  21. 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).
  22. Mark J Machina, 1982. ""Expected Utility" Analysis without the Independence Axiom," Levine's Working Paper Archive 7650, David K. Levine.
  23. Kingwell, Ross, 1996. "Programming models of farm supply response: The impact of specification errors," Agricultural Systems, Elsevier, vol. 50(3), pages 307-324.
  24. Jock R. Anderson, 1982. "Agricultural Economics, Interdependence And Uncertainty," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 26(2), pages 89-97, 08.
  25. 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.
  26. 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.
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