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Calibration of agricultural risk programming models

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  • Petsakos, Athanasios
  • Rozakis, Stelios

Abstract

Positive Mathematical Programming (PMP) is one of the most commonly used methods for calibrating activity programming models. In this article we consider PMP as a calibration method for risk programming models with a mean-variance (E-V) specification. We argue that the restrictive theoretical assumptions employed by typical linear E-V models limit their applicability in analyzing the effects of decoupled payments on agricultural production decisions. Furthermore, the requirement for eliciting a risk aversion coefficient renders such models incompatible with the PMP method. For this reason we propose a nonlinear E-V specification and develop a PMP-based procedure for its calibration which does not aim at introducing (further) nonlinearities in the objective function, but at recovering the “true” distribution of wealth that will allow the final model to reproduce base year observations. We also examine how our approach relates to the recent PMP developments on calibration against elasticity priors and we show how such priors can be used for the calibration of the nonlinear E-V model.

Suggested Citation

  • Petsakos, Athanasios & Rozakis, Stelios, 2015. "Calibration of agricultural risk programming models," European Journal of Operational Research, Elsevier, vol. 242(2), pages 536-545.
    • Handle: RePEc:eee:ejores:v:242:y:2015:i:2:p:536-545
    DOI: 10.1016/j.ejor.2014.10.018
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    13. Kamel Louhichi & Pavel Ciaian & Maria Espinosa & Angel Perni & Sergio Gomez y Paloma, 2018. "Economic impacts of CAP greening: application of an EU-wide individual farm model for CAP analysis (IFM-CAP)," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(2), pages 205-238.
    14. Basnet, Shyam Kumar & Jansson , Torbjorn & Heckelei, Thomas, 2021. "A Bayesian econometrics and risk programming approach for analysing the impact of decoupled payments in the European Union," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(03), January.
    15. Francisco Fernández & Roberto Ponce & Maria Blanco & Diego Rivera & Felipe Vásquez, 2016. "Water Variability and the Economic Impacts on Small-Scale Farmers. A Farm Risk-Based Integrated Modelling Approach," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(4), pages 1357-1373, March.
    16. de Frutos Cachorro, Julia & Gobin, Anne & Buysse, Jeroen, 2018. "Farm-level adaptation to climate change: The case of the Loam region in Belgium," Agricultural Systems, Elsevier, vol. 165(C), pages 164-176.
    17. Ciaian, Pavel & Espinosa, Maria & Louhichi, Kamel & Perni, Angel & Gomez y Paloma, Sergio, 2018. "Farm level impacts of abolishing the CAP direct payments: An assessment using the IFM-CAP model," 162nd Seminar, April 26-27, 2018, Budapest, Hungary 272087, European Association of Agricultural Economists.
    18. Robert, Marion & Bergez, Jacques-Eric & Thomas, Alban, 2018. "A stochastic dynamic programming approach to analyze adaptation to climate change – Application to groundwater irrigation in India," European Journal of Operational Research, Elsevier, vol. 265(3), pages 1033-1045.
    19. Esther Boere & G. Cornelis van Kooten, 2015. "Reforming the Common Agricultural Policy: Decoupling Agricultural Payments from Production and Promoting the Environment," Working Papers 2015-01, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    20. Qiuzhuo Ma & Krishna P Paudel & Liting Gu & Xiaowei Wen, 2018. "An application of a cardinality-constrained multiple benchmark tracking error model on a plant enterprise selection problem," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(5), pages 677-721.

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