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The Economic Efficiency Of Diversification: Certainty Equivalence And The Mean-Variance Model

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  • Featherstone, Allen M.
  • Moss, Charles B.

Abstract

The marginal benefit and cost of diversification for Florida orange producers is studied using certainty equivalents. The primary contribution of this study is the application of the mean-variance model to farm management decisions. Results indicate that for moderate and high levels of risk aversion, diversification into strawberry, grapefruit, or additional orange production is not optimal. However, moderately risk-averse Florida orange producers would diversify into grapefruit production, if the annual amortized fixed costs were reduced by as little as 10%.

Suggested Citation

  • Featherstone, Allen M. & Moss, Charles B., 1989. "The Economic Efficiency Of Diversification: Certainty Equivalence And The Mean-Variance Model," Staff Papers 133739, Kansas State University, Department of Agricultural Economics.
    • Handle: RePEc:ags:ksaesp:133739
    DOI: 10.22004/ag.econ.133739
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    References listed on IDEAS

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    4. Raskin, Rob & Cochran, Mark J., 1986. "Interpretations And Transformations Of Scale For The Pratt-Arrow Absolute Risk Aversion Coefficient: Implications For Generalized Stochastic Dominance," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 11(2), pages 1-7, December.
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