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Specification of Micro Risk Models for Farm Management and Policy Research


  • Robison, Lindon J.
  • King, Robert J.


This paper illustrates a new methodology for finding preferred action choice(s) under uncertainty for well-defined classes of decision-makers The methodology does not replace the expected utility maximizing rule, which has been used to identify preferred action choices; rather it extends the rule's accuracy as a positivistic tool and its reliability as a normative guide. The methodology used in this paper does, however, alter the kinds of information needed about decision- makers. Hence, it is related to a practical question facing the Western Regional Research Committee (W-149). This committee is considering estimating utility functions for a large number of decision-makers differentiated by geographic area, commodity produced, farm size, wealth, and other variables and they want to know the value of such a project. Because there was no consensus among the committee, a subcommittee was appointed to explore the question in more detail. This paper can be considered part of that exploration. The remainder of this paper has four parts. In the first, we compare our current interest in utility functions with an earlier interest in production functions and note some similarities. The second part describes how stochastic dominance with respect to a function can be used to identify preferred action choices under uncertainty. The third part illustrates the criterion with a numerical example. And the fourth part concludes with our recommendation for future work on specifying micro risk models.
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Suggested Citation

  • Robison, Lindon J. & King, Robert J., 1978. "Specification of Micro Risk Models for Farm Management and Policy Research," Agricultural Economic Report Series 201245, Michigan State University, Department of Agricultural, Food, and Resource Economics.
  • Handle: RePEc:ags:midaae:201245

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    References listed on IDEAS

    1. D. Cass & J. E. Stiglitz, 1972. "Risk Aversion and Wealth Effects on Portfolios with Many Assets," Review of Economic Studies, Oxford University Press, vol. 39(3), pages 331-354.
    2. Meyer, Jack, 1977. "Choice among distributions," Journal of Economic Theory, Elsevier, vol. 14(2), pages 326-336, April.
    3. Jock R. Anderson, 1975. "Programming For Efficient Planning Against Non‚ÄźNormal Risk," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 19(2), pages 94-107, August.
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    Cited by:

    1. Young, Douglas & Lin, William & Pope, Rulon & Robison, Lindon & Selley, Roger, 1979. "Risk Preferences Of Agricultual Producers:Their Measurement And Use," Risk Management in Agriculture: Behavioral, Managerial, and Policy Issues, January 25-26, 1979, San Francisco, California 271459, Regional Research Projects > W-149: An Economic Evaluation of Managing Market Risks in Agriculture.
    2. Robison, Lindon J. & Abkin, Michael H., 1981. "Theoretical and Practical Models for Investment and Disinvestment Decision Making Under Uncertainty in the Energy Supply Industry," Agricultural Economic Report Series 201288, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    3. Cochran, Mark J., 1986. "Stochastic Dominance: The State Of The Art In Agricultural Economics," Regional Research Projects > 1986: S-180 Annual Meeting, March 23-26, 1986, Tampa, Florida 271995, Regional Research Projects > S-180: An Economic Analysis of Risk Management Strategies for Agricultural Production Firms.
    4. King, Robert P., 1979. "Operational Techniques for Applied Decision Analysis Under Uncertainty," AAEA Fellows - Dissertations and Theses, Agricultural and Applied Economics Association, number 181951.
    5. Rister, M. Edward & Skees, Jerry R. & Black, J. Roy, 1984. "Evaluating Use Of Outlook Information In Grain Sorghum Storage Decisions," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 16(1), pages 1-8, July.


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