Skip to main content Accessibility help
×
Home

An Investigation of the Relationship Between Constraint Omission and Risk Aversion in Firm Risk Programming Models

  • Wesley N. Musser (a1), Bruce A. McCarl (a2) and G. Scott Smith (a3)

Abstract

A model with omitted resource constraints is suggested as an alternative to a risk aversion model for explaining economic behavior. This paper uses two standard mathematical programming models to further explore this issue. One model is a standard profit maximization linear programming model and the other is a risk averse quadratic programming model with part of the constraints deleted. Theoretical investigation of these models demonstrates that risk aversion can substitute for omitted resource constraints. A small empirical model is then solved under both formulations. With resource constraints deleted, positive risk aversion is necessary to obtain a similar enterprise organization as under profit maximization with complete constraints. These two solutions are then interpreted with the theoretical optimality conditions.

Copyright

References

Hide All
Adams, R., Menkhaus, D., and Woolery, B.. “Alternative Parameter Specification in E-V Analysis: Implications for Farm Level Decision Making.West. J. Agr. Econ., 5(1980):1320.
Antle, J. M..“Incorporating Risk in Production Analysis.Amer. J. Agr. Econ., 65,5(1983):1,0991,106.
Baker, T. G. and McCarl, B. A.. “Representing Farm Resource Availability and Time in Linear Programs: A Case Study.No. Cent. J. Agr. Econ., 4(1982):5968.
Baumol, W. J.. Economic Theory and Operations Analysis. Fourth Edition. Englewood Cliffs, New Jersey: Prentice Hall, Inc., 1977.
Brink, L. G..and McCarl, B. A.. “The Trade Off Between Expected Return and Risk Among Corn-Belt Crop Farmers.Amer. J. Agr. Econ., 60,2(1979):259263.
Freund, R.The Introduction of Risk Into a Programming Model.Econometrica, 24(1956): 253263.
Gray, R. S..and Furtan, W. H.. “Risk Analysis in the Theory of the Firm: An Old Problem Revisited.Can. J. Agr. Econ., 31(1983):2744.
Lin, W., Dean, G., and Moore, C.. “An Empirical Test of Utility vs. Profit Maximization in Agricultural Production.Amer. J. Agr. Econ., 56,3(1974):497508.
Musser, W. N., Mapp, H. P. Jr., and Barry, P. J.. “Applications I: Risk Programming.Risk Management in Agriculture. Barry, P. J., editor. Ames: Iowa State University Press, 1984.
Musser, W. N..and Stamoulis, K. G.. “Evaluating the Food and Agricultural Act of 1977.Amer. J. Agr. Econ., 61,3(1982):447463.
Pope, R. D..“Supply Response and the Dispersion of Price Expectations.Amer. J. Agr. Econ., 63,1(1981):161163.
Robison, L. J., Barry, P. J., Kliebenstein, J. B., and Patrick, G. R.. “Risk Attitudes: Concepts and Measurement Approaches.Risk Management in Agriculture. Barry, P. J., editor. Ames: Iowa State University Press, 1984.
Roumasset, J.Risk Aversion, Indirect Utility Functions, and Market Failure.Risk, Uncertainty, and Agricultural Development, edited by Roumasset, J. A., Boussard, J. M., and Singh, I.. Agricultural Development Council, New York, 1979; pp. 93113.
Sengupta, J. and Sfeir, R.. “Allocative Behavior Under Risk Aversion Through Quadratic Programming Experiments.Applied Econ:, 12(1980):367375.
Young, D. L., Lin, W., Pope, R., Robison, L., and Selly, R.. “Risk Preferences of Agricultural Producers: Their Measurement and Use.Risk Management in Agriculture: Behavioral, Managerial and Policy Issues. Dept. of Agr. Econ., University of Illinois, AE-4478, 1979.

Keywords

An Investigation of the Relationship Between Constraint Omission and Risk Aversion in Firm Risk Programming Models

  • Wesley N. Musser (a1), Bruce A. McCarl (a2) and G. Scott Smith (a3)

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed