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Practical Application and Discernability of Risky Choice Models

About: The article was published on 2009-01-01 and is currently open access. It has received 4 citations till now.

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Journal ArticleDOI
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....

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References
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Book ChapterDOI
01 Jan 1982

478 citations


"Practical Application and Discernab..." refers background or methods in this paper

  • ...…overconfidence (Alpert and Raiffa 1982; Camerer 1995; Lichtenstein, Frischhoff, and Phillips 1982; Murphy and Winkler 1974), availability bias (Tversky and Kahneman 1982), law of small numbers bias (Tversky and Kahneman 1982), representative bias (Tversky and Kahneman 1982), and conservatism…...

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  • ...The law of small numbers is a form of judgment bias that refers to the tendency to rely too heavily on experience when only a few observations are available (Tversky and Kahneman 1982)....

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  • ...…(Alpert and Raiffa 1982; Camerer 1995; Lichtenstein, Frischhoff, and Phillips 1982; Murphy and Winkler 1974), availability bias (Tversky and Kahneman 1982), law of small numbers bias (Tversky and Kahneman 1982), representative bias (Tversky and Kahneman 1982), and conservatism (Edwards 1982)....

    [...]

  • ...11 Prospect Theory To consider prospect theory, we use the modifications introduced by Tversky and Kahneman (1992), which are applied in a manner similar to Quiggin’s rank-dependent utility model....

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  • ...For example, the generalized prospect theory of Tversky and Kahneman (1992) suggests...

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Journal ArticleDOI
TL;DR: This paper proposed a broad generalization of standard choice-theoretic welfare economics that encompasses a wide variety of nonstandard behavioral models, exploiting the coherent aspects of choice that those positive models typically attempt to capture.
Abstract: We propose a broad generalization of standard choice-theoretic welfare economics that encompasses a wide variety of nonstandard behavioral models. Our approach exploits the coherent aspects of choice that those positive models typically attempt to capture. It replaces the standard revealed preference relation with an unambiguous choice relation: roughly, x is (strictly) unambiguously chosen over y (written xP*y) iff y is never chosen when x is available. Under weak assumptions, P* is acyclic and therefore suitable for welfare analysis; it is also the most discerning welfare criterion that never overrules choice. The resulting framework generates natural counterparts for the standard tools of applied welfare economics and is easily applied in the context of specific behavioral theories, with novel implications. Though not universally discerning, it lends itself to principled refinements.

422 citations

Book ChapterDOI
01 Jan 1979
TL;DR: In this paper, the major axiom systems of expected utility theory such as those presented by von Neumann, Morgenstern, Marschak, Savage, and Arrow are discussed.
Abstract: Few attempts have yet been made to interrelate the major axiom systems of expected utility theory such as those presented by von Neumann—Morgenstern, Marschak, Savage, and Arrow. This paper attempts to consolidate the theoretical and empirical research on these axioms by showing the correspondences among the major axioms of each system and highlighting their similarities and differences in dealing with concepts such as probability and utility.

408 citations


"Practical Application and Discernab..." refers background in this paper

  • ...One approach cleverly manipulates the probability distributions to test for violations of models (e.g., MacCrimmon and Larsson 1979; Lichtenstein and Slovic 1971)....

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Journal ArticleDOI
TL;DR: In this paper, a method is developed to estimate jointly risk preferences and technology under general conditions, and the approach is illustrated in an application to the analysis of U.S. corn-soybean acreage decision over time.
Abstract: A method is developed to estimate jointly risk preferences and technology under general conditions. The approach is illustrated in an application to the analysis of U.S. corn-soybean acreage decisions over time. The results provide useful information on the nature of farmers' risk preferences and on the influence of price risk and production risk on acreage allocation and farmers' welfare. Copyright 1996 by MIT Press.

378 citations


"Practical Application and Discernab..." refers background in this paper

  • ...For example, Chavas and Holt (1996) assume specific parametric forms for risk preferences and perceptions of the consequences of risky decisions, and then estimate the associated parameters to explain observed behavior....

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Journal ArticleDOI

352 citations


"Practical Application and Discernab..." refers background in this paper

  • ...Some have even been resurrected from earlier eras (e.g., the safety rules of Roy 1952, Katoka 1963, and Telser 1955-6)....

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