Farm-level Acreage Allocation under Risk
We model the area allocation decision problem for a fixed size crop farm under random yields and prices for a risk-averse farmer. We assume that in the short run, the variable input expenses are fixed per hectare and per crop (an assumption that is motivated by our data). Therefore the cost function depends only on the non-stochastic area allocation. The first order conditions of the model involve integrals across functions of random variables that do not in general have closed form solutions. Numerical simulation techniques are used to calibrate the parameters of the cost function. The two sources of randomness, price and yield, are combined into a single random variable, the yield-in-value. Based on examination of panels of yield-in-value data, we assume independence across the yield-in-value distributions and that the farmers know these distributions. We have modeled the sugar quota constraint, the Common Agricultural Policy subsidies and set-aside, and one Agri-Environmental Measure called "buffer zone".
|Date of creation:||2006|
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- Hans Binswanger, 1981.
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"Production Risk and the Estimation of Ex Ante Cost Functions,"
Staff General Research Papers Archive
1922, Iowa State University, Department of Economics.
- Moschini, GianCarlo, 2001. "Production risk and the estimation of ex-ante cost functions," Journal of Econometrics, Elsevier, vol. 100(2), pages 357-380, February.
- GianCarlo Moschini, 2000. "Production Risk and the Estimation of Ex Ante Cost Functions," Center for Agricultural and Rural Development (CARD) Publications 00-wp262, Center for Agricultural and Rural Development (CARD) at Iowa State University.
- Moschini, Giancarlo & Hennessy, David A., 2001.
"Uncertainty, risk aversion, and risk management for agricultural producers,"
Handbook of Agricultural Economics,
in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 2, pages 88-153
- Moschini, GianCarlo & Hennessy, David A., 2001. "Uncertainty, Risk Aversion, and Risk Management for Agricultural Producers," Staff General Research Papers Archive 5323, Iowa State University, Department of Economics.
- Rulon D. Pope, 2003. "Agricultural Risk Analysis: Adequacy of Models, Data, and Issues," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1249-1256.
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- repec:feb:artefa:0008 is not listed on IDEAS
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