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Portfolio Adjustments: An Application to Rural Banking

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  • Lindon J. Robison
  • Peter J. Barry

Abstract

A general method is provided for evaluating how an expected-utility-maximizing choice is changed in response to factors shifting the mean-variance (EV) efficient set and changes in the decision maker's level of risk aversion. Substitution and income effects under uncertainty are defined, related to those existing under certainty, and analyzed graphically and in a quadratic programming model of a rural bank. The bank application includes risk and liquidity components and indicates that the magnitude of the portfolio response may not be trivial. Evidence is also provided indicating the consistency between bank behavior and the EV decision criterion.

Suggested Citation

  • Lindon J. Robison & Peter J. Barry, 1977. "Portfolio Adjustments: An Application to Rural Banking," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(2), pages 311-320.
    • Handle: RePEc:oup:ajagec:v:59:y:1977:i:2:p:311-320.
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    File URL: http://hdl.handle.net/10.2307/1240021
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    Citations

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    Cited by:

    1. Robison, Lindon J. & King, Robert P., 1978. "Specification of Micro Risk Models for Farm Management and Policy Research," Agricultural Economic Report Series 10260, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    2. Petrick, Martin & Ditges, C. Markus, 2000. "Risk in agriculture as impediment to rural lending: the case of North-Western Kazakhstan," IAMO Discussion Papers 24, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    3. Holmes, Marionette & Park, Timothy A., 2001. "Modeling Financial Asset Demands Of Small Agribusiness Firms: A Portfolio Theory Approach," 2001 Annual meeting, August 5-8, Chicago, IL 20461, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Musser, Wesley N., 1994. "Progress In Risk Analysis In Regional Projects," 1994 Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses Risk, Technical Committee Meeting, March 24-26, 1994, Gulf Shores State Park, Alabama 271553, Regional Research Projects > S-232: Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk.
    5. Robison, Lindon & Carman, Garth, 1979. "Aggregate Risk Response Models And Market Equilibrium," Risk Management in Agriculture: Behavioral, Managerial, and Policy Issues, January 25-26, 1979, San Francisco, California 271467, Regional Research Projects > W-149: An Economic Evaluation of Managing Market Risks in Agriculture.
    6. Barry, Peter J., 1990. "Issues In Farm Level Modeling," 1990 Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk Meeting, January 28-31, 1990, Sanibel Island, Florida 271537, Regional Research Projects > S-232: Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk.
    7. Musser, Wesley N. & Stamoulis, Kostas G., 1980. "Risk Transfer And Commodity Programs," Risk Analysis in Agriculture: Research and Educational Developments, January 16-18, 1980, Tucson, Arizona 271565, Regional Research Projects > W-149: An Economic Evaluation of Managing Market Risks in Agriculture.
    8. Robison, Lindon J. & Abkin, Michael H., 1981. "Theoretical and Practical Models for Investment and Disinvestment Decision Making Under Uncertainty in the Energy Supply Industry," Agricultural Economic Report Series 201288, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    9. Hatch, L. Upton & Musser, Wesley N., 1980. "Some Evidence On The Relationship Between Loan Insurance And The Supply Of Agricultural Credit From Commercial Banks," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 12(2), pages 1-5, December.
    10. Meyer, Jack & Robison, Lindon J., 1986. "A Consistency Condition For Expected Utility And Mean Variance Analysis," 1986 Annual Meeting, July 27-30, Reno, Nevada 278153, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    11. Chase Econometric Associates for the Economic Development Division, 1981. "Regional Financial And Monetary Policy Analysis Model," Staff Reports 276719, United States Department of Agriculture, Economic Research Service.
    12. Halter, A.N. & Mason, Robert, 1978. "Utility Measurement For Those Who Need To Know," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 3(2), pages 1-12, December.

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