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Farmer responses to changing risk aversion, enterprise variability and resource endowments
Author(s) -
Komarek Adam M.,
MacAulay T. Gordon
Publication year - 2013
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.12010
Subject(s) - risk aversion (psychology) , economics , gross margin , variance (accounting) , constraint (computer aided design) , resource (disambiguation) , microeconomics , margin (machine learning) , budget constraint , econometrics , natural resource economics , financial economics , production (economics) , expected utility hypothesis , computer science , mathematics , accounting , machine learning , geometry , computer network
The focus of this article is on assessing how risk aversion, enterprise variability and resource endowments affect farm land‐use decisions and economic returns. A theoretical model of a two‐enterprise, two‐constraint farm is developed, and then, an empirical illustration for an A ustralian farm is provided. The methodology used builds on previous expected mean‐variance ( EV ) models by incorporating land and budget constraints. The K uhn– T ucker conditions of the EV model are examined to highlight that changes in resource endowments have larger effects on economic returns, than do changes in risk aversion or enterprise gross margin variability. It was also found that combinations of enterprise mixes that do not use all available resources can produce higher economic returns, relative to some enterprise mixes that use all available resources.