Farmer Responses to Changing Risk Aversion, Enterprise Variability and Resource Endowments

20 Pages Posted: 21 Jun 2013

See all articles by Adam M. Komarek

Adam M. Komarek

Western Sydney University

T. Gordon MacAulay

The University of Sydney - Faculty of Agriculture, Food and Natural Resources

Date Written: July 2013

Abstract

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 Australian farm is provided. The methodology used builds on previous expected mean‐variance (EV) models by incorporating land and budget constraints. The Kuhn–Tucker 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.

Keywords: economic returns, enterprise variability, farm enterprise choices, resource endowments, risk aversion

Suggested Citation

Komarek, Adam M. and MacAulay, T. Gordon, Farmer Responses to Changing Risk Aversion, Enterprise Variability and Resource Endowments (July 2013). Australian Journal of Agricultural and Resource Economics, Vol. 57, Issue 3, pp. 379-398, 2013, Available at SSRN: https://ssrn.com/abstract=2282920 or http://dx.doi.org/10.1111/1467-8489.12010

Adam M. Komarek (Contact Author)

Western Sydney University ( email )

PO Box 10
Kingswood, NSW 2747
Australia

T. Gordon MacAulay

The University of Sydney - Faculty of Agriculture, Food and Natural Resources ( email )

Sydney
Australia
+61 2 9351 2786 (Phone)
+61 2 9351 4953 (Fax)

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