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How Much Do Farmers Value Their Independence? Estimating The Risk And Autonomy Premia Associated With Production Contracts

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  • Key, Nigel D.

Abstract

A farmer's decision to contract or produce independently depends on the distribution of income under both arrangements, and on attributes associated with both business arrangements. Risk-averse farmers should be willing to pay a risk premium for the reduction in price risk provided by a contract. Farmers with a preference for "autonomy" should be willing to pay a premium for certain attributes associated with independent production, such as the right to make management decisions and own the commodity they produce. The benefits to growers from contracting (such as risk reduction) may be over-estimated if the non-pecuniary benefits enjoyed by independent producers are not accounted for. This study uses national survey data to estimate the risk premium, the change in expected income, and the autonomy premium associated with hog production contracts.

Suggested Citation

  • Key, Nigel D., 2002. "How Much Do Farmers Value Their Independence? Estimating The Risk And Autonomy Premia Associated With Production Contracts," 2002 Annual meeting, July 28-31, Long Beach, CA 19688, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea02:19688
    DOI: 10.22004/ag.econ.19688
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    References listed on IDEAS

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    1. MacDonald, James M. & Perry, Janet E. & Ahearn, Mary Clare & Banker, David E. & Chambers, William & Dimitri, Carolyn & Key, Nigel D. & Nelson, Kenneth E. & Southard, Leland W., 2004. "Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities," Agricultural Economic Reports 34013, United States Department of Agriculture, Economic Research Service.

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