Modeling Risk Behavior of Agricultural Production in Chinese Small Households

This paper analyzed Chinese small-scale farmer's response to agricultural risks by using MOTAD model. Based on the household's data from the two villages Wangjia and Damao in Zhejiang province, we established "representative rural household" for each of the sampling villages. The results show that farmers in Zhejiang are quite sensitive to agricultural risks. However, different farming systems, the ratio of agricultural income to total family income, as well as the size of arable land, differentiates their risk response. The decision maker's risk preference not only affects the type of agricultural activities and corresponding scales they selected, but also have further effects on the micro agricultural production structure and stable growth of household's income. Given the amount of productive resources such as arable land, capital and labor force, the combination of production activities with a higher level of expected income/risk would be selected if the decision maker is willing to take risks. In a higher level of risks, capital is invested prior to manpower, implying that the latter has a much higher opportunity cost. For those combinations with a lower risk level, diversification might reduce risks to some extent at a cost of total return. Current agriculture structure needs to be adjusted and improved.