IDEAS home Printed from https://ideas.repec.org/a/oup/revage/v28y2006i4p553-566..html
   My bibliography  Save this article

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

Author

Listed:
  • 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.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1467-9353.2006.00322.x
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Pannell, David J., 1990. "An Economic Response Model Of Herbicide Application For Weed Control," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 34(3), pages 1-19, December.
    3. 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.
    4. Anderson, Jock R. & Dillon, John L. & Hardaker, Brian, 1977. "Agricultural Decision Analysis," Monographs: Applied Economics, AgEcon Search, number 288652, November.
    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. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bennett, Anne L. & Pannell, David J., 1998. "Economic evaluation of a weed-activated sprayer for herbicide application to patchy weed populations," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 42(4), pages 1-20.
    2. Wallace, Garry E. & Samsul Huda, A.K., 2005. "Using climate information to approximate the value at risk of a forward contracted canola crop," AFBM Journal, Australasian Farm Business Management Network, vol. 2(1), pages 1-9.
    3. Graham R. Marshall & Kevin A. Parton & G.L. Hammer, 1996. "Risk Attitude, Planting Conditions And The Value Of Seasonal Forecasts To A Dryland Wheat Grower," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 40(3), pages 211-233, December.
    4. 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.
    5. Patterson, Jeffrey M. & Boisvert, Richard N., 2002. "An Incentive Compatible Self-Compliant Pollution Policy and Asymmetric Information on Both Risk Attitudes and Technology," Working Papers 127318, Cornell University, Department of Applied Economics and Management.
    6. Monjardino, M. & McBeath, T. & Ouzman, J. & Llewellyn, R. & Jones, B., 2015. "Farmer risk-aversion limits closure of yield and profit gaps: A study of nitrogen management in the southern Australian wheatbelt," Agricultural Systems, Elsevier, vol. 137(C), pages 108-118.
    7. Crean, Jason & Parton, Kevin & Mullen, John & Jones, Randall, 2013. "Representing climatic uncertainty in agricultural models – an application of state-contingent theory," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(3).
    8. Adamson, David, 2010. "Climate change, Irrigation and Pests: Examining Heliothis in the Murray Darling Basin," Risk and Sustainable Management Group Working Papers 149879, University of Queensland, School of Economics.
    9. Mullen, John D., 2001. "An Economic Persective On Land Degradation Issues," Research Reports 27999, New South Wales Department of Primary Industries Research Economists.
    10. 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.
    11. Pannell, David J., 1994. "The Value Of Information In Herbicide Decision Making For Weed Control In Australian Wheat Crops," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(2), pages 1-16, December.
    12. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Are farmers in low-rainfall cropping regions under-fertilizing? An Australian case-study," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 124976, International Association of Agricultural Economists.
    13. Predrag Rajsic & Alfons Weersink & Markus Gandorfer, 2009. "Risk and Nitrogen Application Levels," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(2), pages 223-239, June.
    14. Farquharson, Robert J., 2006. "Production Response and Input Demand in Decision Making: Nitrogen Fertilizer and Wheat Growers," Australasian Agribusiness Review, University of Melbourne, Department of Agriculture and Food Systems, vol. 14.
    15. Nordblom, Thomas L. & Medd, Richard W., 2000. "Whole Truth in Herbicide Labelling," 2000 Conference (44th), January 23-25, 2000, Sydney, Australia 123711, Australian Agricultural and Resource Economics Society.
    16. Farquharson, Robert J. & Scott, J. Fiona, 2000. "Analysis of Farming Systems Issues in the Northern Cropping Region of NSW," 2000 Conference (44th), January 23-25, 2000, Sydney, Australia 123644, Australian Agricultural and Resource Economics Society.
    17. Leddin, Clare & Morse-McNabb, Elizabeth & Smith, Kevin & Ho, Christie & Jacobs, Joseph, 2023. "How can improved farmer decisions and farm system impacts resulting from the use of digital forage measurement technologies on dairy farms be valued?," Agricultural Systems, Elsevier, vol. 212(C).
    18. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Revisiting N fertilisation rates in low-rainfall grain cropping regions of Australia: A risk analysis," 2012 Conference (56th), February 7-10, 2012, Fremantle, Australia 124339, Australian Agricultural and Resource Economics Society.
    19. Alford, Andrew R. & Griffith, Garry R. & Cacho, Oscar J., 2003. "A Northern Tablelands Whole-Farm Linear Program for Economic Evaluation of New Technologies at the Farm-Level," Research Reports 28010, New South Wales Department of Primary Industries Research Economists.
    20. Young, Michael & Young, John & Kingwell, Ross S. & Vercoe, Philip E., 2023. "Evaluation of the least cost option to manage pastures in a wet winter in south-eastern Australia," AFBM Journal, Australasian Farm Business Management Network, vol. 20(3), August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:revage:v:28:y:2006:i:4:p:553-566.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press or Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.