Uncertainty in the environment of the farm firm: A simulation approach

The primary objective of this study was to develop a farm business laboratory to evaluate alternative strategies of a farm firm under various conditions of risk and uncertainty. A simulation approach has been used and the developed model includes the following elements of the environment: — The instability of farm firm production functions and prices; variations and possible changes over time of the coefficients and prices are considered; — a simple description of the current Swedish rules of taxation, borrowing of capital, employment of labour and the system of crop yield insurance are included. The results of the experiments indicate that the proposedmodel was well suited to evaluate the consequences of stochastic variations in the environment of the farm firm. Possible consequences of non-stochastic changes could be illustrated by the use of conventional sensitivity analysis. The results of the experiments also indicated sensitivity to changes in the assumptions concerning the consumption pattern and the decision rules of the manager, an important area for further validation of the model.