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Using optimization techniques in a simulation framework, this study demonstrates the synergy between risk balancing and alternative strategies in effectively reducing risk under changing farm conditions. Highly risk-averse farmers tend to prefer integrated risk-management plans, based on the diversification principle, that yield offsetting combinations of the risk-reducing benefits of most strategies and the profit-generating capacities of the others. The greater appeal of a more diversified plan usually downplays the risk balancing strategy as the farm utilizes credit reserves to implement other production and marketing plans considered essential to overall risk reduction. The farm, however, still realizes overall, although more regulated, reduction in its financial risk position.

Keywords: business risk ; expected utility-mean variance framework ; financial risk ; multiperiod quadratic programming model ; Risk Balancing Hypothesis

Subject(s): Farm Management

Issue Date: 2001-12

Publication Type: Journal Article

PURL Identifier: http://purl.umn.edu/15461 Published in: Journal of Agricultural and Applied Economics, Volume 33, Number 3 Page range: 413-429

Total Pages: 17

JEL Codes: Q12

Record appears in: Southern Agricultural Economics Association (SAEA) > Journal of Agricultural and Applied Economics





Autor: Escalante, Cesar L. ; Barry, Peter J.

Fuente: http://ageconsearch.umn.edu/record/15461?ln=en







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