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Risk Balancing in an Integrated Farm Risk Management Plan

Published online by Cambridge University Press:  12 June 2017

Cesar L. Escalante  and
Peter J. Barry
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Abstract

Using optimization techniques in a Simulation framework, this study demonstrates the synergy between risk balancing and alternative strategies in effectively reducing risk under changing farm conditions. Highly risk-averse farmers tend to prefer integrated risk-management plans, based on the diversification principle, that yield offsetting combinations of the risk-reducing benefits of most strategies and the profit-generating capacities of the others. The greater appeal of a more diversified plan usually downplays the risk balancing strategy as the farm utilizes credit reserves to implement other production and marketing plans considered essential to Overall risk reduction. The farm, however, still realizes overall, though more regulated, reduction in its financial risk position.

Keywords

business riskexpected utility-mean variance frameworkfinancial riskmulti-period quadratic programming modelRisk Balancing HypothesisQ12Q14
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 33 , Issue 3 , December 2001 , pp. 413 - 429
Copyright
Copyright © Southern Agricultural Economics Association 2001

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