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Risk programming and sparse data: how to get more reliable results

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  • Lien, Gudbrand
  • Hardaker, J. Brian
  • Asseldonk, Marcel A.P.M. van
  • Richardson, James W.

Abstract

Because relevant historical data for farms are inevitably sparse, most risk programming studies rely on few observations of uncertain crop and livestock returns. We show the instability of model solutions with few observations and discuss how to use available information to derive an appropriate multivariate distribution function that can be sampled for a more complete representation of the possible risks in risk-based models. For the particular example of a Norwegian mixed livestock and crop farm, the solution is shown to be unstable with few states of nature producing a risky solution that may be appreciably sub-optimal. However, the risk of picking a sub-optimal plan declines with increases in number of states of nature generated by Latin hypercube sampling.

Suggested Citation

  • Lien, Gudbrand & Hardaker, J. Brian & Asseldonk, Marcel A.P.M. van & Richardson, James W., 2009. "Risk programming and sparse data: how to get more reliable results," Agricultural Systems, Elsevier, vol. 101(1-2), pages 42-48, June.
  • Handle: RePEc:eee:agisys:v:101:y:2009:i:1-2:p:42-48
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    Cited by:

    1. Komarek, Adam M. & MacAulay, T. Gordon, 2013. "Farmer responses to changing risk aversion, enterprise variability and resource endowments," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(3), September.
    2. Ricome, Aymeric & Chaib, Karim & Ridier, Aude & Kephaliacos, Charilaos & Carpy-Goulard, Francoise, 2016. "The Role of Marketing Contracts in the Adoption of Low-Input Production Practices in the Presence of Income Supports: An Application in Southwestern France," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(3), September.
    3. Kandulu, John M. & Bryan, Brett A. & King, Darran & Connor, Jeffery D., 2012. "Mitigating economic risk from climate variability in rain-fed agriculture through enterprise mix diversification," Ecological Economics, Elsevier, vol. 79(C), pages 105-112.
    4. Kandulu, John, 2011. "Assessing the potential for beneficial diversification in rain-fed agricultural enterprises," 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia 100568, Australian Agricultural and Resource Economics Society.
    5. Komarek, Adam M. & Bell, Lindsay W. & Whish, Jeremy P.M. & Robertson, Michael J. & Bellotti, William D., 2015. "Whole-farm economic, risk and resource-use trade-offs associated with integrating forages into crop–livestock systems in western China," Agricultural Systems, Elsevier, vol. 133(C), pages 63-72.
    6. repec:eee:ecolec:v:141:y:2017:i:c:p:144-153 is not listed on IDEAS
    7. Szvetlana Acs & Paul Berentsen & Ruud Huirne & Marcel van Asseldonk, 2009. "Effect of yield and price risk on conversion from conventional to organic farming ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(3), pages 393-411, July.
    8. Kandulu, John M., 2013. "Quantifying the extent to which enterprise mix diversification can mitigate economic risk in rainfed agriculture," Australasian Agribusiness Review, University of Melbourne, Melbourne School of Land and Environment, vol. 21.

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