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A Return-Risk Analysis of the Decision to Participate in Government Price Support Programs

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  • Kaiser, E.H.
  • Robinson, B.H.

Abstract

Most farm management decisions are made under conditions of risk. Risk in agriculture arises from market forces, weather, disease, insect damage, and other factors which cannot be controlled or accurately predicted. One of the major goals of farm commodity programs is to reduce instability in both prices and supplies. With increased stability, producers can make more realistic business plans. Current commodity programs contain price supports in the form of loans and target prices as well as set-aside and diversion provisions. While these provisions are designed to reduce instability, they represent additional variables the farmer must consider in his planning process. The objective of this paper is to present a model that can be used to examine the price risk reducing effects of government programs on farm organization for alternative farm tenure situations. Many models used to study farm management problems are specified under assumed certainty. For example, conventional linear programming does not really accommodate risk. Of course, assumed yields and prices can be changed in these models to analyze their effects on farm organization, but there is no measurement of the risk associated with each resulting farm organization. As a result, conventional linear programming solutions of farm organizations have often been rejected because the solutions may specify actions that lead to a higher degree of risk than many farm managers are willing to accept

Suggested Citation

  • Kaiser, E.H. & Robinson, B.H., 1979. "A Return-Risk Analysis of the Decision to Participate in Government Price Support Programs," 1979 Annual Meeting, July 29-August 1, Pullman, Washington 278189, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea79:278189
    DOI: 10.22004/ag.econ.278189
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    References listed on IDEAS

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    1. P. B. R. Hazell, 1971. "A Linear Alternative to Quadratic and Semivariance Programming for Farm Planning under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 53(1), pages 53-62.
    2. P. B. R. Hazell, 1971. "A Linear Alternative to Quadratic and Semivariance Programming for Farm Planning under Uncertainty: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 53(4), pages 664-665.
    3. John T. Scott & Chester B. Baker, 1972. "A Practical Way to Select an Optimum Farm Plan Under Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(4_Part_1), pages 657-660.
    4. J. M. Vandeputte & C. B. Baker, 1970. "Specifying the Allocation of Income among Taxes, Consumption, and Savings in Linear Programming Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 52(4), pages 521-527.
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    Keywords

    Risk and Uncertainty;

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