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Incorporating risk in a positive mathematical programming framework: a new methodological approach

Linda Arata, Michele Donati, Paolo Sckokai () and Filippo Arfini

No 182659, 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia from European Association of Agricultural Economists

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.

Keywords: Research Methods/ Statistical Methods; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 15
Date: 2014-08
New Economics Papers: this item is included in nep-agr and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae14:182659

DOI: 10.22004/ag.econ.182659

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