Positive Mathematical Programming with Generalized Risk: A Revision

UC Davis Department of Agricultural and Resource Economics Working Paper No. 15-002

31 Pages Posted: 18 Apr 2015

See all articles by Quirino Paris

Quirino Paris

University of California, Davis - Department of Agricultural and Resource Economics

Date Written: April 14, 2015

Abstract

In 1956, Freund introduced the analysis of price risk in a mathematical programming framework. This paper generalizes the treatment of price risk preferences in a mathematical programming framework along the lines suggested by Meyer (1987) who demonstrated the equivalence of expected utility and a wide class of probability distributions that differ only by location and scale. This paper shows how to formulate a Positive Mathematical Programming (PMP) specification that allows the estimation of the risk preference parameters and calibrates the model to the base data within admissible small deviations. The PMP approach under generalized risk allows also the estimation of output supply elasticities and the response analysis of decoupled farm subsidies that, recently, has interested policy makers. The approach is applied to a sample of large farms. Not all farms produce all commodities.

Keywords: positive mathematical programming, generalized risk, output supply elasticities, policy analysis

JEL Classification: C6

Suggested Citation

Paris, Quirino, Positive Mathematical Programming with Generalized Risk: A Revision (April 14, 2015). UC Davis Department of Agricultural and Resource Economics Working Paper No. 15-002. Available at SSRN: https://ssrn.com/abstract=2594573 or http://dx.doi.org/10.2139/ssrn.2594573

Quirino Paris (Contact Author)

University of California, Davis - Department of Agricultural and Resource Economics ( email )

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Davis, CA 95616
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