An Applied Procedure for Estimating and Simulating Multivariate Empirical (MVE) Probability Distributions In Farm-Level Risk Assessment and Policy Analysis

Simulation as an analytical tool continues to gain popularity in industry, government, and academics. For agricultural economists, the popularity is driven by an increased interest in risk management tools and decision aids on the part of farmers, agribusinesses, and policy makers. Much of the recent interest in risk analysis in agriculture comes from changes in the farm program that ushered in an era of increased uncertainty. With increased planting flexibility and an abundance of insurance and marketing alternatives farmers face the daunting task of sorting out many options in managing the increased risk they face. Like farmers, decision makers throughout the food and fiber industry are seeking ways to understand and manage the increasingly uncertain environment in which they operate. The unique abilities of simulation as a tool in evaluating and presenting risky alternatives together with an expected increase in commodity price risk, as projected by Ray, et al., will likely accelerate the interest in simulation for years to come.