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Risk Modeling Using Direct Solution of Nonlinear Approximations of the Utility Function

Author

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  • David K. Lambert
  • Bruce A. McCarl

Abstract

A risk model is developed which involves direct solution of the expected utility maximization problem utilizing nonlinear programming. The model permits the use of utility functions exhibiting increasing, constant, and decreasing absolute risk aversion. Demonstrations are done using functions exhibiting such properties over normal, uniform, and triangular data sets.

Suggested Citation

  • David K. Lambert & Bruce A. McCarl, 1985. "Risk Modeling Using Direct Solution of Nonlinear Approximations of the Utility Function," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(4), pages 846-852.
  • Handle: RePEc:oup:ajagec:v:67:y:1985:i:4:p:846-852.
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    File URL: http://hdl.handle.net/10.2307/1241825
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    1. Jones, Jason P.H. & McCarl, Bruce A., 2016. "Impacts of U.S. Production-Dependent Ethanol Policy on Agricultural Markets," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236258, Agricultural and Applied Economics Association.
    2. Timothy J. Lowe & Paul V. Preckel, 2004. "Decision Technologies for Agribusiness Problems: A Brief Review of Selected Literature and a Call for Research," Manufacturing & Service Operations Management, INFORMS, vol. 6(3), pages 201-208.
    3. J. Pannell, David, 1991. "Pests and pesticides, risk and risk aversion," Agricultural Economics, Blackwell, vol. 5(4), pages 361-383, August.
    4. Dubman, Robert W., 1988. "Establishing Peanut Purchasing Contract Terms With Uncertain Market Prices And Input Supplies," Journal of Food Distribution Research, Food Distribution Research Society, vol. 19(1), pages 1-14, February.
    5. Acs, Szvetlana & Berentsen, Paul B.M. & Huirne, Ruud & van Asseldonk, Marcel, 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 1-19.
    6. Alfons Weersink & Scott Jeffrey & David Pannell, 2002. "Farm-Level Modeling for Bigger Issues," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(1), pages 123-140.
    7. Ridier, Aude & Ben El Ghali, Mohamed & Nguyen, G. & Kephaliacos, Charilaos, 2013. "The role of risk aversion and labor constraints in the adoption of low input practices supported by the CAP green payments in cash crop farms," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement (RAEStud), Institut National de la Recherche Agronomique (INRA), vol. 94(2).
    8. Randhir, Timothy O. & Lee, John G., 1997. "Economic And Water Quality Impacts Of Reducing Nitrogen And Pesticide Use In Agriculture," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 26(1), pages 1-13, April.
    9. Lelyon, Baptiste & Chatelier, Vincent & Daniel, Karine, 2011. "Decoupling and prices: determinant of dairy farmers’ choices?," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement (RAEStud), Institut National de la Recherche Agronomique (INRA), vol. 92(1).
    10. Fabian, Capitanio & Felice, Adinolfi & Fabio G., Santeramo, 2014. "Crop insurance subsidies and environmental externalities: evidence from Southern Italy," MPRA Paper 62505, University Library of Munich, Germany.
    11. Heidelbach, Olaf, 2007. "Efficiency of selected risk management instruments: An empirical analysis of risk reduction in Kazakhstani crop production," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 40, number 92323.
    12. Gustafson, Cole R. & Wilson, William W. & Dahl, Bruce L., 2006. "Production Risk And Crop Insurance In Malting Barley: A Stochastic Dominance Analysis," 2006 Annual meeting, July 23-26, Long Beach, CA 21095, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. World Bank, 2010. "Improving Water Management in Rainfed Agriculture : Issues and Options in Water-Constrained Production Systems," World Bank Other Operational Studies 13028, The World Bank.
    14. Arnade, Carlos & Lee, David, 1990. "Risk Aversion Through Nontraditional Export Promotion Programs in Central America," Staff Reports 278362, United States Department of Agriculture, Economic Research Service.
    15. Gudbrand Lien & J. Hardaker & Marcel Asseldonk & James Richardson, 2011. "Risk programming analysis with imperfect information," Annals of Operations Research, Springer, vol. 190(1), pages 311-323, October.
    16. G. R. Soltani & M. Bakhshoodeh & M. Zibaei, 2009. "Optimization of Agricultural Water Use and Trade Patterns: The Case of Iran," Working Papers 508, Economic Research Forum, revised Dec 2009.
    17. Schoney, R. A., 1990. "An Analysis of Wheat Supply Response Under Risk and Uncertainty," Working Papers 244030, Agriculture and Agri-Food Canada.
    18. Abrahams, Nii Adote & Shortle, James S., 1997. "Uncertainty And The Regulation Of Nitrate Pollution From Agriculture," 1997 Annual meeting, July 27-30, Toronto, Canada 21027, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    19. Messina, C. D. & Hansen, J. W. & Hall, A. J., 1999. "Land allocation conditioned on El Nino-Southern Oscillation phases in the Pampas of Argentina," Agricultural Systems, Elsevier, vol. 60(3), pages 197-212, June.
    20. Seo, Sangtaek & Mitchell, Paul D. & Leatham, David J., 2004. "Effects Of Federal Risk Management Programs On Land Allocation And Input Use," 2004 Annual meeting, August 1-4, Denver, CO 20160, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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