Agricultural arbitrage and risk preferences

Abstract

A structural inter-temporal model of agricultural asset arbitrage equilibrium is developed and applied to agriculture in the North-Central region of the U.S. The data is consistent with unifying level of risk aversion. The levels of risk aversion are more plausible than previous estimates for agriculture. However, the standard arbitrage equilibrium is rejected; perhaps this is due to the period and the shortness of the period studied.

General Equilibrium Modelling of the Insurance Industry: U.S. Crop Insurance

“…We follow many simulation studies (for instance Miao et al, 2016) by specifying farmers to be expected utility maximizers. This specification is also supported by the econometric results obtained by Pope et al (2011) who also assume that utility depends on consumption levels (and not wealth or profits).…”

“…We first introduce the crop production uncertainty and consider two periods, capturing the fact that a risky event is a future event. We then introduce a farm household that has many possibilities to manage risks and smooth consumption levels (Pope et al, 2011). The third modification involves explicitly modeling the agricultural insurance market, in particular, the demand by farmers of subsidized insurance products.…”

“…This distinction allows specifying the risk attitudes of the farm household (eventually their risk aversion) that may differ from the risk attitudes of other households. Moreover, this approach potentially allows for the capturing of different risk management strategies that farm households may mobilize to smooth their consumption levels (Pope et al, 2011). These strategies include short-term production decisions, longterm investment and saving decisions, off-farm labor decisions, contracting with intermediaries (Du et al, 2015) or input suppliers (Kuethe and Paulson, 2014), and insurance contracts.…”

The impact of water price uncertainty on the adoption of precision irrigation systems

“…There are a variety of methods used in the literature to estimate risk preferences. Recent work by Pope, LaFrance, and Just (2011) suggests using techniques based on portfolio theory to measure risk attitudes by using investment decisions. That method requires information on wealth, which we do not have available for the AEWSD region.…”

SMEs' Management in the 21st Century

“…While the degree of specialisation or diversification in the holding's activity may be estimated, the task of separating the individual's inclination to risk-taking from among other factors influencing farmers' decision-making process is a tremendously difficult one (Pope et al 2011). …”