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A Re-examination of the Farm Diversification Problem

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  • S. R. Johnson

Abstract

The problem of selecting combinations of enterprises for farms is similar in nature to the portfolio problem for the investor. That is, when net incomes from farm enterprises are viewed in probabilistic terms and the farmer is assumed to be endowed with a particular amount of land, the problem of selecting an optimal mix of enterprises can be interpreted as a special case of the portfolio problem. Recognition of the similarity of the two problems provides a basis for applying the results of recent research in portfolio analysis to studying farm diversification. In particular, the separation theorem and its immediate corollaries suggest a solution to the farm diversification problem under rather general conditions regarding both the decision maker's preference for risk and the feasible set determined by alternative mixes of enterprises. An application of this theorem to the farm diversification problem is made in this article, and a number of extensions which improve the usefulness of the results are suggested.

Suggested Citation

  • S. R. Johnson, 1967. "A Re-examination of the Farm Diversification Problem," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 49(3), pages 610-621.
  • Handle: RePEc:oup:ajagec:v:49:y:1967:i:3:p:610-621.
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    File URL: http://hdl.handle.net/10.2307/1236896
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    Cited by:

    1. Petr Havlik & Geoffroy Enjolras & Jean-Marie Boisson & Florence Jacquet & Michel Lherm & Patrick Veysset, 2008. "Environmental good production in the optimum activities portfolio of a risk averse-farmer," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 86(1), pages 9-33.
    2. Bartolini, Fabio & Andreoli, Maria & Brunori, Gianluca, 2014. "Explaining determinants of the on-farm diversification: empirical evidence from Tuscany region," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 0(Issue 2), pages 1-21, August.
    3. Boris E. Bravo-Ureta & Horacio Cocchi & Daniel Solís, 2006. "Output Diversification among Small-Scale Hillside Farmers in El Salvador," IDB Publications (Working Papers) 3012, Inter-American Development Bank.
    4. Anderson, Jock R., 1972. "An Overview of Modelling in Agricultural Management," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 0(Number 03), pages 1-12, September.
    5. K. C. Schaefer, 1992. "A Portfolio Model For Evaluating Risk In Economic Development Projects, With An Application To Agriculture In Niger," Journal of Agricultural Economics, Wiley Blackwell, vol. 43(3), pages 412-423.
    6. Erik J. O'Donoghue & Michael J. Roberts & Nigel Key, 2009. "Did the Federal Crop Insurance Reform Act Alter Farm Enterprise Diversification?," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(1), pages 80-104.
    7. Jock R. Anderson, 1975. "Programming For Efficient Planning Against Non‐Normal Risk," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 19(2), pages 94-107, August.
    8. Larsen, Ryan A. & Leatham, David J. & Mjelde, James W. & Wolfley, Jared L., 2008. "Geographical Diversification: An Application of Copula Based CVaR," 2008 Agricultural and Rural Finance Markets in Transition, September 25-26, 2008, Kansas City, Missouri 119533, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    9. repec:ags:frraes:188543 is not listed on IDEAS
    10. Steven C. Blank, 1995. "The new risk environment in California agriculture," Agribusiness, John Wiley & Sons, Ltd., vol. 11(2), pages 155-168.
    11. Culas, Richard J., 2006. "Causes of farm diversification over time: an Australian perspective on an Eastern Norway model," AFBM Journal, Australasian Farm Business Management Network, vol. 0(Number 1), pages 1-9.
    12. Miller, Matthew Edward, 2003. "An economic perspective on Iowa farm diversification in the twentieth century," ISU General Staff Papers 2003010108000018194, Iowa State University, Department of Economics.

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