Practical Application and Discernability of Risky Choice Models
01 Jan 2009-
About: The article was published on 2009-01-01 and is currently open access. It has received 4 citations till now.
Citations
More filters
23 citations
TL;DR: The importance of risk preferences in agricultural production has long been identified as an important and preeminent issue of policy relevance as discussed by the authors, and recent developments in the study of production risk have called into question much of the core of risk production research.
Abstract: The importance of risk preferences in agricultural production has long been identified as an important and preeminent issue of policy relevance. Recent developments in the study of production risk have called into question much of the core of risk production research. This article provides an overview of the prominent literature attempting to quantify the impact of risk preferences on production and a discussion of the recently discovered challenges. These challenges are typified by (a) an inability to discern risk preferences, (b) an inability to discern the factors that relate to risk preferences, (c) evidence that prior estimation has severe problems, and (d) a general failure of current models to address the important policy or behavioral issues. Although some of these challenges may appear at first blush to be insurmountable, we suggest a new agenda for risk research in production that directly addresses each of these issues.
22 citations
Dissertation•
09 Sep 2015
Abstract: Cette these analyse les enjeux du developpement economique lies aux dynamiques des cours des matieres premieres en general et ceux du coton en particulier. Traditionnellement, les travaux s’inscrivant dans une optique de long terme questionnent la pertinence des specialisations primaires des PMA. A moyen terme l’interet porte davantage sur l’instabilite dont les consequences sont d’autant plus importantes que la dependance des pays a l’exportation de tels produits est forte. Les enjeux s’articulent alors autour des modalites de regulation des marches, du choix d'outils (publics ou marchands) pour la gestion des incertitudes, le tout dependant de l’apprehension de l’instabilite comme un phenomene endogene ou exogene. Dans un contexte nouveau marque par l’affirmation d’oligopoles de firmes, la segmentation du processus productif mondial, et la financiarisation des marches de matieres premieres, nous proposons un cadre analytique permettant d’aborder differemment ces problematiques. Nos travaux montrent d’abord comment les approches du type chaines globales de valeur peuvent etre mobilisees pour mieux orienter les strategies commerciales / industrielles des PMA. S’appuyant sur la notion de rationalite limitee dans le cadre de modeles de comportements heterogenes, ils prouvent ensuite l’existence d’une forte composante endogene dans l’instabilite et par la meme, l'inefficacite des seuls outils marchands. Au final, pour les pays africains producteurs de coton, il apparait qu’il reste possible de mettre ce produit au service d’une strategie globale de developpement. Cela passe par le recours a des mecanismes hybrides de gestion de l’instabilite, combine au renforcement des dynamiques de cooperation transfrontalieres en vue d’une structuration de chaines regionales de valeur.
11 citations
DOI•
27 Nov 2009
TL;DR: In this article, the impact of agricultural policy on water use and farms' incomes in the northeast of the Syrian Arab Republic was investigated. But the authors focused on the three governorates of Deir-Ezzour (DEG), Al-Rakka (RAK), and Al-Hassakeh (HAG), and the results showed that the negative impact of the current policy on the water balance is evident in the area of Al-Khabour basin, located almost entirely in HAG.
Abstract: This thesis aims at measuring the impact of agricultural policy on water use and farms’ incomes in the northeast of the Syrian Arab Republic. The scope of the research is confined to the three governorates of Deir-Ezzour (DEG), Al-Rakka (RAK), and Al-Hassakeh (HAG). The choice of these governorates, that together form the Northeast of Syria, is due to their heavy reliance on policy regulated crops, which makes them relatively more sensitive to any policy reform. Moreover, the negative impact of the current policy on water balance is evident in the Northeast, especially in the area of Al-Khabour basin, located almost entirely in HAG.
In the thesis, irrigated agriculture of the Northeast of Syria has been modelled by a set of representative farms, using the General Algebraic Modelling System (GAMS). The representative farms’ programming models are calibrated on data on observed cropping patterns and water use of 2005. Then, the policy reforms that have occurred after 2005 are considered in the models by changing the values of the relevant policy parameters and new baseline results obtained, inclusive of the most recent implemented reforms.
The comparison between the baseline results of 2005 and the post-reform baseline results show that the recent reform is expected to have a limited impact on water use and farm income. Predicted changes in water use are less than +5% on average, over the entire region, although they vary across the three governorates of the region, with negative change in Al-Hassakeh, and positive in Al-Rakka and Deir-Ezzour. On the other hand, changes in income levels and stability are more noticeable in the three governorates and are always positive. The changes in average income levels range from +15% in Deir-Ezzour to +3% in Al-Hassakeh. The impact on the stability of income is of the same magnitude in percent terms. It is of interest to note that the impact of the recent policy reforms, due to the stabilization of maize price, is greater on income stability than on average income levels in the three governorates.
The next analysis has involved simulation of alternative policy scenarios, including introduction of modern irrigation technology, reform in the farm credit system, and stabilization of alternative crops’ prices. The simulations reveal interesting policy implications. They illustrate that adoption of modern irrigation techniques, even by all farms in the region, would not solve the water scarcity problem in Al-Khabour basin where there will still be a noticeable deficit. This is due to the still low efficiency of modern irrigation schemes in the current condition of the region, but also because our model predicts that water saved thanks to the adoption of modern irrigation schemes will allow expansion of irrigated land. In addition, the results show that decoupling access to official credit from strategic crops would have negligible effects on cropping patterns and, consequently, water use. Similar results come out if the subsidy currently linked to cotton irrigated from private wells would be decoupled. Of the various possible simulated policies, stabilizing cumin price would have the largest positive impact on water consumption, because of expanding cumin cultivation, which is a crop with irrigation requirements, at the expense of wheat and other winter crops.
The thesis adds to the evidence that price policy is potentially the instrument that affects farmers’ decision the most. If effective in stabilizing price for water saving crops, this may be an important tool to combine farm welfare improvement with increased sustainability in water use.
3 citations
Cites background from "Practical Application and Discernab..."
...In addition, Just & Just (2009) demonstrate that the EUT hypothesis cannot be rejected because perceptions and preferences, which both affect behaviour under risk, cannot be measured separately....
[...]
References
More filters
TL;DR: In this paper, the authors present a general calibration problem and apply the results to an empirical risk study in agricultural economics to illustrate the unintended consequences of using expected utility theory to explain risk response.
Abstract: Expected utility theory (EUT) has dominated the agricultural economics literature on behavior under risk, particularly since the late 1970s. In EUT, risk preferences are completely defined by the curvature of the utility function. An expected utility maximizer with a concave utility curve would avoid choices that represent a greater wealth risk. Estimates of risk aversion coefficients, based on assumed utility functional forms, have been valued in predicting producers' responses to proposed policy (see Saha, Shumway, and Talpaz for a review). Yet, these estimates are biased if there are omitted variables (such as knowledge, understanding, and managerial expertise) that are related to the probability distribution of profit. If the production function is jointly estimated with the utility function, then the riskincreasing or risk-reducing properties of production inputs may also wrongly be ascribed to the concavity of the utility function. Since Allais, substantial evidence has been accumulated to suggest systematic flaws in EUT, mostly in experimental settings with small stakes. Applied economists have regarded these violations as exceptions due to the special circumstances surrounding their observation. Recently, Rabin showed that attributing all risk behavior in small gambles solely to diminishing marginal utility of wealth leads to improbable levels of risk aversion. His calibration theorem, based on dichotomous choices, suggests that a person who turns down a lottery with a 0.5 probability of winning $125 and 0.5 probability of losing $100, will always turn down any bet with a 0.5 chance of losing $600, no matter how large of a gain may be had with the remaining 0.5 probability. We generalize Rabin's work to continuous payoff distributions and continuous choice problems to show that his criticism extends to realistic risky situations. The concavity problem is not limited to small money risks. Rather, when risky choices have similar average payouts, utility functions must display ridiculous levels of concavity to predict individual choices. Below, we present our general calibration problem and apply the results to an empirical risk study in agricultural economics to illustrate the unintended consequences of using EUT to explain risk response.
29 citations
"Practical Application and Discernab..." refers background in this paper
...Models that modify evaluation of outcomes include Machina (1982), Yaari (1987), and Chew (1983, 1989)....
[...]
TL;DR: In this paper, the authors adopt a more direct approach by estimating subjects' indifference maps in the Marschak-Machina Triangle, and find that most subjects have maps which are nearly consistent with those implied by Subjective Expected Utility theory.
Abstract: The ongoing debate on the correct modelling of economic behaviour under risk makes heavy expositional use of the 'Marschak-Machina Triangle'. This has also been used when constructing tests of the various competing theories. In this paper, we adopt a more direct approach - by estimating subjects' indifference maps in the Triangle. Employing an interview technique, we find that most subjects have maps which are nearly consistent with those implied by Subjective Expected Utility theory.
20 citations
"Practical Application and Discernab..." refers background in this paper
...In contrast, Hey and Strazzera (1989) find evidence that individuals violate monotonicity when stochastic dominance is hard to identify....
[...]