Min-max regret versus gross margin maximization in arable sector modeling

Stelios Rozakis, Akin Kazakci () and Jean-Claude Sourie ()
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Akin Kazakci: LAMSADE, Universite de Paris X-Dauphine
Jean-Claude Sourie: Production Economics Group, S²A²E², INRA-Grignon

No 2009-01, Working Papers from Agricultural University of Athens, Department Of Agricultural Economics

Abstract: "A sector model presented in this article, uses about 200 representative French cereal-oriented farms to estimate policy impacts by means of mathematical modeling. Usually, such models suppose that farmers intend to maximize expected gross margin. This rationality hypothesis however seems hardly justifiable, especially these days, when gross margin variability due to European Common Agricultural Policy changes may become significant. Increasing uncertainty introduces bounded rationality to the decision problem so that crop gross margins may be better approximated by interval rather than by expected (precise) values. The initial LP problem is specified as an “Interval Linear Programming (ILP)”. We assume that farmers tend to decide upon their surface allocation prudently in order to get through with minimum loss, which is precisely the rationale underlying the minimization of maximum regret decision criterion. Recent advances in operations research, namely Mausser and Laguna algorithms, are exploited to implement the min-max regret criterion to arable agriculture ILP. The validation against observed crop mix proved that as uncertainty increases about 40% of the farmers adopt the min-max regret decision rule instead of the gross margin maximization."

Keywords: Interval Linear Programming; Min-Max Regret; Common Agricultural Policy; Arable cropping; France (search for similar items in EconPapers)
JEL-codes: C61 D81 Q18 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2009
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