Farm/crop portfolio simulations under variable risk: A case study from Italy

Important sources of risk in agriculture are yield and price fluctuations caused by unpredictable and uncontrollable events, inducing income volatility and adding considerable complexity to farmers' decisions. The literature suggests that these events could affect farmers' risk aversion in...

Full description

Saved in:
Bibliographic Details
Published in:Agricultural and food economics Vol. 7; no. 1; pp. 1 - 15
Main Authors: Rosa, Franco, Taverna, Mario, Nassivera, Federico, Iseppi, Luca
Format: Journal Article
Language:English
Published: Heidelberg Springer 02.05.2019
Springer Berlin Heidelberg
Springer Nature B.V
SpringerOpen
Subjects:
Agricultural Economics
Agriculture
case studies
Computer simulation
Crop diversification
Decision making
Decisions
Economic models
Economics
Economics and Finance
Farm planning
Farmers
Farms
Functions (mathematics)
Hypotheses
Income
Italy
Linearization
LP-MOTAD
Mathematical analysis
Oilseed crops
Oilseeds
Optimization
Polynomials
Portfolio analysis
prices
profit maximization
Quadratic programming
Risk
Risk assessment
Risk aversion
Risk reduction
Sumex utility function
Utility functions
Variation
Volatility
Italy
Q12
LP-MOTAD
Risk assessment
Sumex utility function
Portfolio analysis
G11
Farm planning
C61
ISSN:2193-7532, 2193-7532
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Important sources of risk in agriculture are yield and price fluctuations caused by unpredictable and uncontrollable events, inducing income volatility and adding considerable complexity to farmers' decisions. The literature suggests that these events could affect farmers' risk aversion in decision making and justify their preferences for risk minimizing and safety-first survival, rather than a profit maximization strategy. The aim of this study is to test this hypothesis by using a quadratic programming in linearized version and the sumex utility function, which is representable as sum of products of polynomials and exponential (or 'polynex') functions to simulate risk aversion for specific traits of the E-V frontier (Nakamura, Mathematical Soc Sci 31:39-47, 1996). The linear approximation of the utility function is obtained with the MOTAD approach, consisting in the minimization of errors generated by total absolute deviations of gross income from the expected value (Hardaker et al. Rev Mark Agric Econ 59:9-22, 1991). This method allows different portfolio simulations to be run of selected cereal and oilseed crops as risky prospects, by varying the risk parametrically. The results obtained confirm the hypothesis that risk affects farmers' decisions and that crop diversification is a viable strategy as a hedge against risk.
Bibliography:ObjectType-Case Study-2
SourceType-Scholarly Journals-1
content type line 14
ObjectType-Feature-4
ObjectType-Report-1
ObjectType-Article-3
ObjectType-Article-1
ObjectType-Feature-2
content type line 23
ISSN:2193-7532
2193-7532
DOI:10.1186/s40100-019-0127-7