Explicit incorporation of farm program variables in a quadratic risk programming model: a Texas South Plains example

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Title: Explicit incorporation of farm program variables in a quadratic risk programming model: a Texas South Plains example
Author: Ejimakor, Godfrey Chima
Abstract: Net farm income variability that may be associated with farm programs such as target prices are often ignored in risk programming models . Target price programs have been in existence for sometime and form part of the underlying net farm income distribution . Nonlinear programming models were constructed to measure the impact of target prices on the distribution of net farm income . In one model , the variance -covariance matrix of crop gross margins were adjusted for the effects of target prices . In another model , the programming problem was modified to incorporate the distribution of target prices into a quadratic programming framework by measuring each crop's gross margin as a linear function of the corresponding target price . Risk efficient farm plans were estimated for each of the models . Analysis of the sensitivity of the optimal farm plans to changes in the target price distribution was conducted . Yield and price data from the Texas High Plains region were used . Estimated optimal farm plans obtained by use of the adjusted variance -covariance matrix were found to have less variability for the same levels of income when compared with other solutions at low levels of risk aversion . The modified model produced the most risk efficient farm plans when deficiency payments were not included in the gross margins . The expected net farm income -variance frontier estimated for the modified model was found to be the most dominant . Compared to the conventional model , the modified model gave risk reductions of up to 30 percent . The income -variance frontier which included deficiency payments dominated the corresponding frontier without deficiency payments . Sensitivity analysis with the modified model indicated that mean target prices and coefficients of variation are negatively correlated at some target price levels . The correlation is positive at other target prices levels . The findings demonstrate that decision making could be improved in a risk -return framework by adjusting or modifying the programming model . Risk efficiency is increased by participation in farm programs . Furthermore , target price policy could be used to reduce or increase risk and /or income at the farm level .
URI: http : / /hdl .handle .net /2346 /10220
Date: 1989-05

Citation

Ejimakor, Godfrey Chima Explicit incorporation of farm program variables in a quadratic risk programming model: a Texas South Plains example. Doctoral dissertation, Texas Tech University. Available electronically from http : / /hdl .handle .net /2346 /10220 .

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