Incorporating Risk in a Positive Mathematical Programming Framework: a New Methodological Approach

Linda Arata, Michele Donati, Paolo Sckokai, Filippo Arfini

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

In this paper we develop a new methodological proposal to incorporate risk into a farm level Positive Mathematical Programming (PMP) model. Our model presents some innovations with respect to the previous literature and estimates simultaneously the resource shadow prices, the farm non-linear cost function and a farm-specific coefficient of absolute risk aversion. The proposed model has been applied to three farm samples and the estimation results confirm the calibration ability of the model and show values for risk aversion coefficients consistent with the literature. Finally we simulate different scenarios of crop price volatility to test the model reactions as well as the potential role of an agri-environmental scheme as risk management tool.
Original languageEnglish
Title of host publicationAgri-Food and Rural Innovations for Healthier Societies
Pages1-14
Number of pages14
Publication statusPublished - 2014
EventEAAE 2014 Congress - Ljubljana
Duration: 26 Aug 201429 Aug 2014

Conference

ConferenceEAAE 2014 Congress
CityLjubljana
Period26/8/1429/8/14

Keywords

  • risk aversion, positive mathematical programming, farm behaviour

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