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A decision framework for a farmer who is risk averse in the Arrow-Pratt sense and downside risk averse

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  • Donoso, Guillermo

Abstract

This study provides a decision framework to analyze optimal production diversification decisions under uncertainty for a farmer who is risk averse in the Arrow-Pratt sense and downside risk averse. The decision model accounts for the third central moment of the joint distribution of portfolio returns. This is relevant for asymmetrical return distributions. This general model contains the classical decision model as a special case. The benefit of the proposed generalization is that each competing behavioral hypothesis is discerned econometrically through the significance of the agent’s coefficient of absolute and/or relative downside risk aversion.

Suggested Citation

  • Donoso, Guillermo, 2014. "A decision framework for a farmer who is risk averse in the Arrow-Pratt sense and downside risk averse," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 14(02), pages 1-22, December.
    • Handle: RePEc:ags:earnsa:195720
    DOI: 10.22004/ag.econ.195720
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    References listed on IDEAS

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    4. Russell Tronstad & Thomas J. McNeill, 1989. "Asymmetric Price Risk: An Econometric Analysis of Aggregate Sow Farrowings, 1973–86," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(3), pages 630-637.
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    6. Salvatore Di Falco & Jean-Paul Chavas, 2006. "Crop genetic diversity, farm productivity and the management of environmental risk in rainfed agriculture," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 33(3), pages 289-314, September.
    7. Simkowitz, Michael A. & Beedles, William L., 1978. "Diversification in a Three-Moment World," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(5), pages 927-941, December.
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