Farmer responses to changing risk aversion, enterprise variability and resource endowments

The focus of this article is on assessing how risk aversion, enterprise variability and resource endowments affect farm land‐use decisions and economic returns. A theoretical model of a two‐enterprise, two‐constraint farm is developed, and then, an empirical illustration for an Australian farm is pr...

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Published inThe Australian journal of agricultural and resource economics Vol. 57; no. 3; pp. 379 - 398
Main Authors Komarek, Adam M., MacAulay, T. Gordon
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.07.2013
Subjects
Agricultural economics
Australia
Budget economics
Decision making
Econometrics
economic returns
Economics
Endowment
enterprise variability
farm enterprise choices
Farms
Land use
Methodology
resource endowments
Risk
Risk aversion
Studies
Australia
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Summary:The focus of this article is on assessing how risk aversion, enterprise variability and resource endowments affect farm land‐use decisions and economic returns. A theoretical model of a two‐enterprise, two‐constraint farm is developed, and then, an empirical illustration for an Australian farm is provided. The methodology used builds on previous expected mean‐variance (EV) models by incorporating land and budget constraints. The Kuhn–Tucker conditions of the EV model are examined to highlight that changes in resource endowments have larger effects on economic returns, than do changes in risk aversion or enterprise gross margin variability. It was also found that combinations of enterprise mixes that do not use all available resources can produce higher economic returns, relative to some enterprise mixes that use all available resources.
Bibliography:Australian Journal of Agricultural and Resource Economics, v.57, no.3, July 2013: (379)-398
Adam M. Komarek (email
is at the School of Science and Health, University of Western Sydney, Locked Bag 1797, Penrith NSW 2751, Australia. T.Gordon MacAulay is at the Faculty of Agriculture and Environment, The University of Sydney, NSW 2006, Australia.
a.komarek@uws.edu.au
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ISSN:1364-985X
1467-8489
DOI:10.1111/1467-8489.12010