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Information Value and Risk Premium in Agricultural Production: The Case of Split Nitrogen Application for Corn

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  • Philippe Bontems
  • Alban Thomas

Abstract

This article considers an agricultural production model of sequential nitrogen application under risk. Because of random shocks between subsequent production stages, optimal fertilization decisions depend on the magnitude of farmers' risk aversion (risk premium), and the possibility for farmers to process information (value of information). We propose a joint estimation procedure of technology and risk aversion parameters, using a structural, simulation-based econometric procedure. Parameter estimates allow to compute both the value of information and the risk premium, which account for about 30% of fertilizer cost for Midwest corn producers. Copyright 2000, Oxford University Press.

Suggested Citation

  • Philippe Bontems & Alban Thomas, 2000. "Information Value and Risk Premium in Agricultural Production: The Case of Split Nitrogen Application for Corn," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(1), pages 59-70.
  • Handle: RePEc:oup:ajagec:v:82:y:2000:i:1:p:59-70
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    File URL: http://hdl.handle.net/10.1111/0002-9092.00006
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    Citations

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    Cited by:

    1. Vercammen, James & Gulati, Sumeet & Anda, Mario, 2004. "Government Taxation Schemes to Reduce Fertilizer Runoff," NAREA-CAES Conference, June 20-23, 2004, Halifax, Nova Scotia 34195, Canadian Agricultural Economics Society;Northeastern Agricultural and Resource Economics Association.
    2. Eli Feinerman & Marinus Komen, 2005. "The Use of Organic vs. Chemical Fertilizer with a Mineral Losses Tax: The Case of Dutch Arable Farmers," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 32(3), pages 367-388, November.
    3. Bontems, Philippe & Thomas, Alban, 2001. "Optimal Regulation Under Asymmetric Information And Risk Aversion With An Application To Pollution Control," 2001 Annual meeting, August 5-8, Chicago, IL 20727, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Tronstad, Russell & Silvertooth, Jeffrey C. & Husman, Steve, 2001. "Optimal Production Inputs With Varying Quality And Yield Components: Irrigation Termination Of Upland," 2001 Annual Meeting, July 8-11, 2001, Logan, Utah 36088, Western Agricultural Economics Association.
    5. Baptiste Lelyon & Vincent Chatellier & Karine Daniel, 2011. "Decoupling and prices: determinant of dairy farmers’ choices?," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 92(1), pages 47-68.
    6. EECKHOUDT Louis & THOMAS Alban & TREICH Nicolas, 2006. "Correlated Risks and the Value of Information for Agricultural Producers," LERNA Working Papers 06.12.205, LERNA, University of Toulouse.
    7. B. Kelsey Jack & Paulina Oliva & Christopher Severen & Elizabeth Walker & Samuel Bell, 2015. "Technology Adoption Under Uncertainty: Take-Up and Subsequent Investment in Zambia," NBER Working Papers 21414, National Bureau of Economic Research, Inc.
    8. Arnaud Reynaud, 2009. "Adaptation à court et à long terme de l'agriculture au risque de sécheresse : une approche par couplage de modèles biophysiques et économiques," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 90(2), pages 121-154.
    9. Carpentier, Alain & Gohin, Alexandre & Sckokai, Paolo & Thomas, Alban, 2015. "Economic modelling of agricultural production: past advances and new challenges," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 96(01), pages 131-165, March.
    10. repec:eee:ecomod:v:222:y:2011:i:18:p:3429-3436 is not listed on IDEAS
    11. Holden , Stein T. & Quiggin, John, 2017. "Probability Weighting and Input Use Intensity in a State-Contingent Framework," CLTS Working Papers 8/17, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    12. Gomez-Limon, Jose Antonio & Riesgo, Laura & Arriaza Balmón, Manuel, 2002. "Agricultural Risk Aversion Revisited: A Multicriteria Decision-Making Approach," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24827, European Association of Agricultural Economists.
    13. Gomez-Limon, Jose A. & Arriaza, Manuel & Riesgo, Laura, 2003. "An MCDM analysis of agricultural risk aversion," European Journal of Operational Research, Elsevier, vol. 151(3), pages 569-585, December.

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