Portfolio Adjustments: An Application to Rural Banking

Lindon Robison and Peter J. Barry

American Journal of Agricultural Economics, 1977, vol. 59, issue 2, 311-320

Abstract: A general method is provided for evaluating how an expected-utility-maximizing choice is changed in response to factors shifting the mean-variance (EV) efficient set and changes in the decision maker's level of risk aversion. Substitution and income effects under uncertainty are defined, related to those existing under certainty, and analyzed graphically and in a quadratic programming model of a rural bank. The bank application includes risk and liquidity components and indicates that the magnitude of the portfolio response may not be trivial. Evidence is also provided indicating the consistency between bank behavior and the EV decision criterion.

Date: 1977
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