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Evaluation of Alternative Risk Specifications in Farm Programming Models

Published online by Cambridge University Press:  15 September 2016

Stephen A. Ford ,
Beth Pride Ford  and
Thomas H. Spreen
Stephen A. Ford
Affiliation:
Department of Agricultural Economics and Rural Sociology, The Pennsylvania State University
Beth Pride Ford
Affiliation:
Department of Agricultural Economics and Rural Sociology, The Pennsylvania State University
Thomas H. Spreen
Affiliation:
Food and Resource Economics Department, University of Florida
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Abstract

The use of alternative probability density functions to specify risk in farm programming models is explored and compared to a traditional specification using historical data. A method is described that compares risk efficient crop mixes using stochastic dominance techniques to examine impacts of different risk specifications on farm plans. Results indicate that a traditional method using historical farm data is as efficient for risk averse producers as two other methods of incorporating risk in farm programming models when evaluated using second degree stochastic dominance. Stochastic dominance with respect to a function further discriminates among the distributions, indicating that a density function based on the historic forecasting accuracy of the futures market results in a more risk-efficient crop mix for highly risk averse producers. Results also illustrate the need to validate alternative risk specifications perceived as improvements to traditional methods.

Type
Articles
Information
Agricultural and Resource Economics Review , Volume 24 , Issue 1 , April 1995 , pp. 25 - 35
Copyright
Copyright © 1995 Northeastern Agricultural and Resource Economics Association 

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