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An Examination of the Crop Acreage Allocation Decision Process under Uncertainty

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  • Lee, Young-Jae
  • Kennedy, P. Lynn

Abstract

This study seeks to determine the workings of a system of acreage allocation given price and yield uncertainty so as to identify the role that uncertainty in market output has in acreage allocation decisions. This study adapts expected utility as developed by Chavas and Holt. The major findings of this study are as follows: 1) the effect of wealth in acreage decisions depends not only on the risk preference of the farm but also on the risk in and the structure of the output market, 2) violation of symmetry can come from (i) differing expectations regarding yield and price, (ii) risk differences in the price and yield for each crop, and/or (iii) different risk preferences among farm households, 3) the non-negativity of own compensated acreage effects would be satisfied if Proposition 1 or 2 holds, 4) production decisions would be affected by price and yield risk even when all input and output prices change proportionally, in which case homogeneity would not be satisfied without Proposition 1, and 5) symmetry of expected price and yield requires additional restrictions on the ratio of expected yields and prices and responsiveness of acreage to cross yield and price.

Suggested Citation

  • Lee, Young-Jae & Kennedy, P. Lynn, 2013. "An Examination of the Crop Acreage Allocation Decision Process under Uncertainty," Asian Journal of Agriculture and Rural Development, Asian Economic and Social Society (AESS), vol. 3(02), pages 1-10, February.
    • Handle: RePEc:ags:ajosrd:198031
    DOI: 10.22004/ag.econ.198031
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    References listed on IDEAS

    as
    1. Richard E. Just, 1974. "An Investigation of the Importance of Risk in Farmers' Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(1), pages 14-25.
    2. Chavas, Jean-Paul & Pope, Rulon, 1985. "Price uncertainty and competitive firm behavior: Testable hypotheses from expected utility maximization," Journal of Economics and Business, Elsevier, vol. 37(3), pages 223-235, August.
    3. Carlos Arnade & David Kelch, 2007. "Estimation of Area Elasticities from a Standard Profit Function," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(3), pages 727-737.
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    5. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February.
    6. Jean-Paul Chavas & Matthew T. Holt, 1990. "Acreage Decisions Under Risk: The Case of Corn and Soybeans," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(3), pages 529-538.
    7. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    8. Barry T. Coyle, 1999. "Risk Aversion and Yield Uncertainty in Duality Models of Production: A Mean-Variance Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 553-567.
    9. William Lin, 1977. "Measuring Aggregate Supply Response under Instability," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(5), pages 903-907.
    10. Berndt, Ernst R & Savin, N Eugene, 1975. "Estimation and Hypothesis Testing in Singular Equation Systems with Autoregressive Disturbances," Econometrica, Econometric Society, vol. 43(5-6), pages 937-957, Sept.-Nov.
    11. C. Richard Shumway, 1983. "Supply, Demand, and Technology in a Multiproduct Industry: Texas Field Crops," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(4), pages 748-760.
    12. Lin, William, 1977. "Measuring Aggregate Supply Response Under Instability," 1977 AAEA-WAEA Joint Meeting, July 31-August 3, San Diego, California 283678, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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