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Producers' complex risk management choices

  • Joost M.E. Pennings

    (Department of Marketing, Department of Finance, Maastricht University, Tongersestraat 53, 6211 LM, Maastricht, The Netherlands; University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics, 326 Mumford Hall, MC-710, 1301 West Gregory Drive, Urbana, Illinois 61801; and Marketing & Consumer Behavior Group, Wageningen University, Hollandseweg 1, 6706 KN Wageningen, The Netherlands)

  • Olga Isengildina-Massa

    (Department of Applied Economics and Statistics, Clemson University, 295 Barre Hall, Box 340313, Clemson, SC 29634-0313)

  • Scott H. Irwin

    (Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, 326 Mumford Hall, MC-710, 1301 West Gregory Drive, Urbana, Illinois 61801)

  • Philip Garcia

    (Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, 326 Mumford Hall, MC-710, 1301 West Gregory Drive, Urbana, Illinois 61801)

  • Darrel L. Good

    (Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, 326 Mumford Hall, MC-710, 1301 West Gregory Drive, Urbana, Illinois 61801)

Producers have a wide variety of risk management instruments available, making their choice(s) complex. The way producers deal with this complexity can vary and may influence the impact that the determinants, such as risk aversion, have on their choices. A recently developed choice bracketing framework recognizes that producers are unable to evaluate all alternatives simultaneously and that to manage a complex task, they often group or bracket individual alternatives and their consequences together in choice sets. Data on 1,105 U.S. producers show that producers do not use all available combinations of risk management tools and that the influence of the determinants of producer's risk management decisions are not necessarily the same across risk management strategies within and across bracketing levels. The findings may help resolve puzzling results on the role that well-known determinants of risk management behavior have on producers' choices, extending knowledge on producers' risk management behavior. Further, the findings have managerial implications for policy makers and agribusiness companies that provide risk management services. [EconLit citations: M000, G1000, Q130] © 2008 Wiley-Liss, Inc.

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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 24 (2008)
Issue (Month): 1 ()
Pages: 31-54

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Handle: RePEc:wly:agribz:v:24:y:2008:i:1:p:31-54
Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Schroeder, Ted C. & Parcell, Joseph L. & Kastens, Terry L. & Dhuyvetter, Kevin C., 1998. "Perceptions Of Marketing Strategies: Producers Versus Extension Economists," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(01), July.
  2. Matthew Rabin & Richard H. Thaler, 2001. "Anomalies: Risk Aversion," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 219-232, Winter.
  3. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  4. Richard H. Thaler, 2000. "From Homo Economicus to Homo Sapiens," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 133-141, Winter.
  5. Huffman, Wallace E & Mercier, Stephanie, 1991. "Joint Adoption of Microcomputer Technologies: An Analysis of Farmers' Decisions," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 541-46, August.
  6. Isengildina, Olga & Pennings, Joost M.E. & Irwin, Scott H. & Good, Darrel L., 2004. "Crop Farmers’ Use of Market Advisory Services," AgMAS Project Research Reports 37489, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
  7. Pennings, Joost M.E. & Isengildina, Olga & Irwin, Scott H. & Good, Darrel L., 2004. "The Impact Of Marketing Advisory Service Recommendations On Producers' Marketing Decisions," 2004 Annual meeting, August 1-4, Denver, CO 20389, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  8. Coble, Keith H. & Heifner, Richard G. & Zuniga, Manuel, 2000. "Implications Of Crop Yield And Revenue Insurance For Producer Hedging," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(02), December.
  9. Joost M.E. Pennings & Philip Garcia, 2001. "Measuring Producers' Risk Preferences: A Global Risk-Attitude Construct," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 993-1009.
  10. Pennings, Joost M. E. & Garcia, Philip, 2004. "Hedging behavior in small and medium-sized enterprises: The role of unobserved heterogeneity," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 951-978, May.
  11. Coble, Keith H. & Knight, Thomas O. & Patrick, George F. & Baquet, Alan E., 1999. "Crop Producer Risk Management Survey: A Preliminary Summary Of Selected Data; A Report From The Understanding Farmer Risk Management Decision Making And Educational Needs Research Project," Information Reports 15805, Mississippi State University, Department of Agricultural Economics.
  12. Daniel McFadden, 1998. "Rationality for Economists?," Working Papers 98-09-086, Santa Fe Institute.
  13. Joost M.E. Pennings & Ale Smidts, 2000. "Assessing the Construct Validity of Risk Attitude," Management Science, INFORMS, vol. 46(10), pages 1337-1348, October.
  14. Pennings, Joost M. E. & M. Leuthold, Raymond, 2001. "Introducing new futures contracts: reinforcement versus cannibalism," Journal of International Money and Finance, Elsevier, vol. 20(5), pages 659-675, October.
  15. Davis, Todd D. & Patrick, George F., 2000. "Forward Marketing Behavior Of Soybean Producers," 2000 Annual meeting, July 30-August 2, Tampa, FL 21822, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  16. Ani L. Katchova & Mario J. Miranda, 2004. "Two-Step Econometric Estimation of Farm Characteristics Affecting Marketing Contract Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 88-102.
  17. Pennings, Joost M.E. & Isengildina, Olga & Irwin, Scott H. & Good, Darrel L., 2004. "The Impact of Market Advisory Service Recommendations on Producers' Marketing Decisions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(02), August.
  18. Joost M.E. Pennings & Raymond M. Leuthold, 2000. "The Role of Farmers' Behavioral Attitudes and Heterogeneity in Futures Contracts Usage," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 908-919.
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