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Intertemporal Decisions Of Farmers Risk Management: A Dynamic Optimization With Generalized Expected Utility


  • Du, Wen
  • Wang, H. Holly


In this paper we attempt an intertemporal study of risk management decisions for wheat growers in the Pacific Northwest. We apply a generalized expected utility model (GEU) to examine the farmers optimal choices of hedging ratios and crop insurance coverage levels in the presence of government payment programs in a multi-period production environment. A stochastic trend model is used to identify the long-term time series patterns of annual wheat yields, cash prices, and futures prices from two counties in Washington. The fitted models are then used as the base for yield and price simulation over the next five years. The stochastic dynamic optimization problem is solved numerically based on simulated data. The optimal solutions indicate that the GEU model is feasible in modeling farmers intertemporal decisions regarding risk management. The comparison between GEU model and some commonly used expected utility models further implies the advantage of the GEU model in being flexible to specify farmers intertemporal preferences separately and completely.

Suggested Citation

  • Du, Wen & Wang, H. Holly, 2004. "Intertemporal Decisions Of Farmers Risk Management: A Dynamic Optimization With Generalized Expected Utility," 2004 Annual Meeting, June 30-July 2, 2004, Honolulu, Hawaii 36205, Western Agricultural Economics Association.
  • Handle: RePEc:ags:waeaho:36205

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    Cited by:

    1. Magreta, Ruth & Magombo, Tennyson & Zingore, Shamie, 2010. "When the Weak Win: Role of Farmer Groups in Influencing Agricultural Policy Outcome; a Case of Nkhate Irrigation Scheme in Malawi," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 97043, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Africa (AEASA).


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