 Index Models and Land Allocation ReconsideredStaff General Research Papers Archive from Iowa State University, Department of Economics Abstract: In contrast with previous index model land applications, this article shows that the land allocation problem is a portfolio model with two constraints, namely, investable funds and land. The two-constraint model implies a drastic reinterpretation of what previous studies have quantified as diversifiable and systematic risks in agricultural production. The article also argues that the constant marginal-rate-of-product-substitution (MRPS) technology implicit in financial portfolio models is unlikely to hold in a production context such as the land allocation problem, and that the index model must be modified accordingly. Farm-level data are used to illustrate and test the hypotheses advanced. Empirical results indicate that most of the risk for corn and soybeans is diversifiable, and that corn and soybeans are characterized by decreasing MRPS. The MRPS effect is found to be large from an economic standpoint and implies that crop diversification may be optimal, even for risk-neutral farmers. Date: 1997-01-01 Published in Canadian Journal of Agricultural Economics 1997, vol. 45, pp. 267-284 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:5081 Access Statistics for this paper More papers in Staff General Research Papers Archive from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC. |
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