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The role of risk and risk-aversion in adoption of alternative marketing arrangements by the US farmers

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  • Wu-Yueh Hu

Abstract

The objective of this article is to analyse the relationship between farmers' risk-aversions and the riskiness of various agricultural enterprises to see which marketing arrangements would typically emerge. Relying on the basic agency theory model, we hypothesize the prevalence of alternative marketing arrangements (AMAs) in situations with high risk-averse farmers and high-risk enterprises and the prevalence of spot (cash) markets for low risk-averse participants and less risky enterprises. Our empirical tests are carried out using the 2004 Agricultural Resource Management Survey (ARMS). The empirical results are largely supportive of the agency theory of contract choice.

Suggested Citation

  • Wu-Yueh Hu, 2015. "The role of risk and risk-aversion in adoption of alternative marketing arrangements by the US farmers," Applied Economics, Taylor & Francis Journals, vol. 47(27), pages 2899-2912, June.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:27:p:2899-2912
    DOI: 10.1080/00036846.2015.1011311
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    1. MacDonald, James M. & Perry, Janet E. & Ahearn, Mary Clare & Banker, David E. & Chambers, William & Dimitri, Carolyn & Key, Nigel D. & Nelson, Kenneth E. & Southard, Leland W., 2004. "Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities," Agricultural Economic Reports 34013, United States Department of Agriculture, Economic Research Service.
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