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Modelling Farmers’ Behaviour Toward Risk in a Large Scale Positive Mathematical Programming (PMP) Model

In: Advances in Applied Economic Research

Author

Listed:
  • Iván Arribas

    (University of Valencia)

  • Kamel Louhichi

    (Institute for Prospective Technological Studies (IPTS))

  • Ángel Perni

    (Institute for Prospective Technological Studies (IPTS))

  • José Vila

    (University of Valencia)

  • Sergio Gómez-y-Paloma

    (Institute for Prospective Technological Studies (IPTS))

Abstract

Agricultural production is characterized for being a risky business due to weather variability, market instability, plant diseases as well as climate change and political economy uncertainty. The modelling of risk at farm level is not new, however, the inclusion of risk in Positive Mathematical Programming (PMP) models is particularly challenging. Most of the few existing PMP-risk approaches have been conducted at farm-type level and for a very limited and specific sample of farms. This implies that the modelling of risk and uncertainty at individual farm level and in a large scale system is still a challenging task. The aim of this paper is to formulate, estimate and test a robust methodology for explicitly modelling risk to be incorporated in an EU-wide individual farm model for Common Agricultural Policy (CAP) analysis, named IFM-CAP. Results show that there is a clear trade-off between the behavioural model (BM) and the behavioural risk model (BRM). Albeit the results show that both alternatives provide very close estimates, the latter increases three times the computation time required for estimation. Despite this, we are convinced that the modelling of risk is crucial to better understand farmer behaviour and to accurately evaluate the impacts of risk management related policies (i.e. insurance schemes).

Suggested Citation

  • Iván Arribas & Kamel Louhichi & Ángel Perni & José Vila & Sergio Gómez-y-Paloma, 2017. "Modelling Farmers’ Behaviour Toward Risk in a Large Scale Positive Mathematical Programming (PMP) Model," Springer Proceedings in Business and Economics, in: Nicholas Tsounis & Aspasia Vlachvei (ed.), Advances in Applied Economic Research, chapter 0, pages 625-643, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-48454-9_42
    DOI: 10.1007/978-3-319-48454-9_42
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    Citations

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    Cited by:

    1. Kamel Elouhichi & Maria Espinosa Goded & Pavel Ciaian & Angel Perni Llorente & Bouda Vosough Ahmadi & Liesbeth Colen & Sergio Gomez Y Paloma, 2018. "The EU-Wide Individual Farm Model for Common Agricultural Policy Analysis (IFM-CAP v.1): Economic Impacts of CAP Greening," JRC Research Reports JRC108693, Joint Research Centre.
    2. Kamel Louhichi & Pavel Ciaian & Maria Espinosa & Angel Perni & Sergio Gomez y Paloma, 2018. "Economic impacts of CAP greening: application of an EU-wide individual farm model for CAP analysis (IFM-CAP)," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(2), pages 205-238.
    3. Ciaian, Pavel & Espinosa, Maria & Louhichi, Kamel & Perni, Angel & Gomez y Paloma, Sergio, "undated". "Farm level impacts of abolishing the CAP direct payments: An assessment using the IFM-CAP model," 162nd Seminar, April 26-27, 2018, Budapest, Hungary 272087, European Association of Agricultural Economists.

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