Skip to main content Accessibility help

Do Farmers Hedge Optimally or by Habit? A Bayesian Partial-Adjustment Model of Farmer Hedging

  • Jeffrey H. Dorfman (a1) and Berna Karali (a1)


Hedging is one of the most important risk management decisions that farmers make and has a potentially large role in the level of profit eventually earned from farming. Using panel data from a survey of Georgia farmers that recorded their hedging decisions for 4 years on four crops, we examine the role of habit, demographics, farm characteristics, and information sources on the hedging decisions made by 57 different farmers. We find that the role of habit varies widely and that estimation of a single habit effect suffers from aggregation bias. Thus, modeling farmer-level heterogeneity in the examination of habit and hedging is crucial.



Hide All
Blanciforti, L., and Green, R.An Almost Ideal Demand System Incorporating Habits: An Analysis of Expenditures on Food and Aggregate Commodity Groups.The Review of Economics and Statistics 65(1983):511–15.
Dorfman, J.H., and Lastrapes, W.D.The Dynamic Responses of Crop and Livestock Prices to Money-Supply Shocks: A Bayesian Analysis Using Long-Run Identifying Restrictions.American Journal of Agricultural Economics 78(1996):530–41.
Dorfman, J.H., Pennings, J.M., and Garcia, P.Is Hedging a Habit? Hedging Ratio Determination of Cotton Producers.” NCR 134 Conference Proceedings, 2005.
Holt, M.T., and Goodwin, B.K.Generalized Habit Formation in an Inverse Almost Ideal Demand System: An Application to Meat Expenditures in the U.S.Empirical Economics 22(1997):293320.
Koop, G. Bayesian Econometrics. Chichester, UK: Wiley, 2003.
Koop, G., and Poirier, D.J.Bayesian Variants of Some Classical Semiparametric Regression Techniques.” Journal of Econometrics 123(2004): 259–82.
Koop, G., and Tobias, J.L.Semiparametric Bayesian Inference in Smooth Coefficient Models.Journal of Econometrics 134(2006):283315.
Pannell, D.J., Hailu, G., Weersink, A., and Burt, A.More Reasons Why Farmers Have So Little Interest in Futures Markets.Agricultural Economics 39(2008):4150.
Pennings, J.M.E. and Garcia, P.Hedging Behavior in Small and Medium-Sized Enterprises: The Role of Unobserved Heterogeneity.Journal of Banking & Finance 28(2004):951–78.
Pennings, J.M.E. and Leuthold, R.M.The Role of Farmers' Behavioral Attitudes and Heterogeneity in Futures Contracts Usage.” American Journal of Agricultural Economics 82(2000): 908–19.
Pope, R., Green, R., and Eales, J.Testing for Homogeneity and Habit Formation in a Flexible Demand Specification of U.S. Meat Consumption.American Journal of Agricultural Economics 62(1980):778–84.


Do Farmers Hedge Optimally or by Habit? A Bayesian Partial-Adjustment Model of Farmer Hedging

  • Jeffrey H. Dorfman (a1) and Berna Karali (a1)


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