Coping with Risk in Agriculture

Abstract

Risk and uncertainty are inescapable factors in agriculture. Types of risk include production, price or market, financial, institutional, and personal or human risks. All of these risks must be managed to achieve satisfactory management in agriculture. The nature of agricultural decision-making under uncertainty is the basis for analysis, as well as the concept of rational choice and its foundations in theories of probability and risk preference. The popular first edition of 'Coping with Risk in Agriculture' has been almost wholly revised. The second edition includes much new material. There is a revised chapter on incorporating decision makers' preferences into the analysis of risky choices that recognises and gives consideration to some recently published challenges to the legitimacy of the expected utility hypothesis. While it is argued that the theory is still the best way to handle risk aversion, at least in prescriptive analyses, more attention is given to the practical problems of utility function elicitation. It is shown how estimates of (or ranges of) degree of risk aversion might best be obtained and consistently applied. The new edition has much more thorough treatment of stochastic simulation, including some novel yet simple methods for dealing with stochastic dependency between uncertain quantities - an aspect too often neglected in many studies in the past. The use of a generic search algorithm in conjunction with stochastic simulation is illustrated. This book is written for advanced undergraduate and postgraduate students of agricultural economics and farm management, as well as advisers to farmers and agricultural research workers.