Much has been written on the determinants of input and technology adoption in agriculture, with issues such as input availability, knowledge and education, risk preferences, profitability, and credit constraints receiving much attention This paper focuses on a factor that has been less well documented: the differential ability of households to take on risky production technologies for fear of the welfare consequences if shocks result in poor harvests Building on an explicit model, this is explored in panel data for Ethiopia Historical rainfall distributions are used to identify the counterfactual consumption risk Controlling for unobserved household and time-varying village characteristics, it emerges that not just exante credit constraints, but also the possibly low consumption outcomes when harvests fail, discourage the application of fertiliser The lack of insurance causes inefficiency in production choices

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Consumption Risk, Technology Adoption and Poverty Traps: Evidence From Ethiopia

The risks confronted by grain and cotton farmers are of particular interest, given the changing role of the Government after passage of the 1996 Farm Act. With the shift toward less government intervention in the post-1996 Farm Act environment, a more sophisticated understanding of risk and risk management is important to help producers make better decisions in risky situations and to assist policymakers in assessing the effectiveness of different types of risk protection tools. In response, this report provides a rigorous, yet accessible, description of risk and risk management tools and strategies at the farm level. It also provides never-before-published data on farmers' assessments of the risks they face, their use of alternative risk management strategies, and the changes they would make if faced with financial difficulty. It also compares price risk across crops and time periods, and provides detailed information on yield variability.

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Managing Risk in Farming: Concepts, Research, and Analysis

An acreage supply response model is developed under expected utility maximization. The resulting framework is used to specify and estimate a system of risk-responsive acreage equations for corn and soybeans in the United States. Particular attention is given to the truncation effects of government price supports on the distribution of corn and soybean prices. Also, a wealth variable is included in the acreage equations. The empirical results indicate that risk and wealth variables play an important role in cornsoybean acreage decisions. The analysis also shows that cross-commodity risk reduction is important in acreage allocation decisions.

Acreage Decisions Under Risk: The Case of Corn and Soybeans

This paper analyzes monotone comparative statics predictions in several classes of stochastic optimization problems. The main results characterize necessary and sufficient conditions for comparative statics predictions to hold based on properties of primitive functions, that is, utility functions and probability distributions. The results apply when the primitives satisfy one of the following two properties: (i) a single-crossing property, which arises in applications such as portfolio investment problems and auctions, or (ii) log-supermodularity, which arises in the analysis of demand functions, affiliated random variables, stochastic orders, and orders over risk aversion.

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Monotone Comparative Statics under Uncertainty

Uncertainty and risk are quintessential features of agricultural production. After a brief overview of the main sources of agricultural risk, we provide an exposition of expected utility theory and of the notion of risk aversion. This is followed by a basic analysis of agricultural production decisions under risk, including some comparative statics results from stylized models. Selected empirical topics are surveyed, with emphasis on risk analyses as they pertain to production decisions at the farm level. Risk management is then discussed, and a synthesis of hedging models is presented. We conclude with a detailed review of agricultural insurance, with emphasis on the moral hazard and adverse selection problems that arise in the context of crop insurance.

Chapter 2 Uncertainty, risk aversion, and risk management for agricultural producers

Sandmo analyzed the effects of change in the expected value and uncertainty of the price on the optimal output of the competitive firm, which were written as ax/aO and ax/aO in his article, under the assumptions mentioned above. As a result of his analysis, he asserted that while the sign of ax/aO can be clearly judged to be positive, the sign of ax/ay is ambiguous in general. The purpose of this note is to show that investigating the sign of ax/ay under the same assumptions and analytic apparatus as Sandmo's, we can decide the sign of ax/a-y, manifestly in opposition to his assertions.

On the Theory of the Competitive Firm under Price Uncertainty: Note

Short and long-term strategic policies of two countries' governments are examined, by adopting a two-country model where each country is endowed with respective renewable resource stock and which is a two-stage game involving two governments and their respective firms that produce a homogenous product derived from a renewable resource. This paper shows that the foreign country of a resource exporter has a trade-off between the expansion of foreign market share and the conservation of its own renewable resource stock, while the domestic country of a resource importer does not have such a trade-off.

Yasunori Ishii

Papers

On the Theory of the Competitive Firm under Price Uncertainty: Note

Title RENEWABLE RESOURCE EXPLOITATION: INTERNATIONAL TRADE AND OPTIMAL STRATEGIC POLICY FOR THE LONG-TERM Sub Title