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Farmland Control Decisions under Different Intertemporal Risk Behavioral Constructs

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  • Escalante, Cesar L.
  • Rejesus, Roderick M.

Abstract

Simulation-optimization techniques are employed to analyze changes in farmland control arrangements as a result of using different constructs of intertemporal risk behavior. Risk behavior based on constant absolute risk aversion (CARA) and constant relative risk aversion (CRRA) mean-standard deviation functions are used to achieve this objective. Specfically, a multi-period programming framework for a representative grain farm is developed to explore farmland control decisions under these two behavioral assumptions. Our results suggest that the use of a CRRA behavioral construct in analyzing farmland control decisions produce predictions that are more consistent with observed farm behavior.

Suggested Citation

  • Escalante, Cesar L. & Rejesus, Roderick M., 2005. "Farmland Control Decisions under Different Intertemporal Risk Behavioral Constructs," 2005 Annual meeting, July 24-27, Providence, RI 19113, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea05:19113
    DOI: 10.22004/ag.econ.19113
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    References listed on IDEAS

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    1. Peter J. Barry & LeeAnn M. Moss & Narda L. Sotomayor & Cesar L. Escalante, 2000. "Lease Pricing for Farm Real Estate," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 22(1), pages 2-16.
    2. Atanu Saha & C. Richard Shumway & Hovav Talpaz, 1994. "Joint Estimation of Risk Preference Structure and Technology Using Expo-Power Utility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(2), pages 173-184.
    3. Babcock, Bruce A. & Choi, E. Kwan & Feinerman, Eli, 1993. "Risk And Probability Premiums For Cara Utility Functions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(1), pages 1-8, July.
    4. Peter J. Barry & David R. Willmann, 1976. "A Risk-Programming Analysis of Forward Contracting with Credit Constraints," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 58(1), pages 62-70.
    5. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
    6. Carl H. Nelson, 2004. "Toward exploring the location-scale condition: a constant relative risk aversion location-scale objective function," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 31(3), pages 273-287, September.
    7. Gollier, Christian & Pratt, John W, 1996. "Risk Vulnerability and the Tempering Effect of Background Risk," Econometrica, Econometric Society, vol. 64(5), pages 1109-1123, September.
    8. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-335, May.
    9. Patrick, George F. & Whitaker, Suzanne H. & Blake, Brian F., 1980. "Farmers' Goals And Risk Aversion: Some Preliminary Analyses," Risk Analysis in Agriculture: Research and Educational Developments, January 16-18, 1980, Tucson, Arizona 271564, Regional Research Projects > W-149: An Economic Evaluation of Managing Market Risks in Agriculture.
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    Cited by:

    1. Lin, Shanshan & Mullen, Jeffrey D. & Hoogenboom, Gerrit, 2008. "Farm-Level Risk Management Using Irrigation and Weather Derivatives," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(2), pages 485-492, August.
    2. Lin, Shanshan & Mullen, Jeffrey D. & Hoogenboom, Gerrit, 2009. "Spatial and Temporal On-Farm Risk Management - Crop Production Scheduling and Index Insurance Strategies," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49350, Agricultural and Applied Economics Association.

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