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Flat Earth Economics: The Far-reaching Consequences of Flat Payoff Functions in Economic Decision Making

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  • David J. Pannell

Abstract

Economists tend to emphasize the optimum, but in many cases, even large deviations from optimal decisions make little difference to the payoff. This has far-reaching implications that are under-recognized, including: (a) decision makers often have a wide margin for error in their production planning decisions, and flexibility to pursue factors not considered in the calculation of payoffs; (b) optimizing techniques are sometimes of limited practical relevance for decision support; (c) the value of information used to refine management decisions is often low; and (d) the benefits of using "precision farming" technologies to adjust production input levels are often low.

Suggested Citation

  • David J. Pannell, 2006. "Flat Earth Economics: The Far-reaching Consequences of Flat Payoff Functions in Economic Decision Making," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(4), pages 553-566.
    • Handle: RePEc:oup:revage:v:28:y:2006:i:4:p:553-566.
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    File URL: http://hdl.handle.net/10.1111/j.1467-9353.2006.00322.x
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    References listed on IDEAS

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    1. Kingwell, R. S. & Morrison, D. A. & Bathgate, A. D., 1992. "The effect of climatic risk on dryland farm management," Agricultural Systems, Elsevier, vol. 39(2), pages 153-175.
    2. Glenn Sheriff, 2005. "Efficient Waste? Why Farmers Over-Apply Nutrients and the Implications for Policy Design," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(4), pages 542-557.
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    5. Pannell, David J. & Glenn, Nicole A., 2000. "A framework for the economic evaluation and selection of sustainability indicators in agriculture," Ecological Economics, Elsevier, vol. 33(1), pages 135-149, April.
    6. Anderson, Jock R. & Dillon, John L. & Hardaker, Brian, 1977. "Agricultural Decision Analysis," Monographs: Applied Economics, AgEcon Search, number 288652.
    7. Pannell, David J. & Malcolm, Bill & Kingwell, Ross S., 2000. "Are we risking too much? Perspectives on risk in farm modelling," Agricultural Economics, Blackwell, vol. 23(1), pages 69-78, June.
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