Incorporating Risk in a Positive Mathematical Programming Framework: A Dual Approach

20 Pages Posted: 5 Apr 2017

See all articles by Linda Arata

Linda Arata

Catholic University of the Sacred Heart of Milan - Catholic University of the Sacred Heart of Piacenza

Michele Donati

Universita Degli Studi Di Parma

Paolo Sckokai

Universita Cattolica, Piacenza

Filippo Arfini

University of Parma

Date Written: April 2017

Abstract

In this study we develop a new methodological proposal to incorporate risk into a farm‐level positive mathematical programming (PMP) model. We estimate simultaneously the farm nonlinear cost function and a farmer‐specific coefficient of absolute risk aversion as well as the resource shadow prices. The model is applied to a sample of representative arable crop farms from the Emilia‐Romagna region in Italy. The estimation results confirm the calibration ability of the model and reveal the values of the individual risk aversion coefficients. We use the model to simulate different scenarios of crop price volatility, in order to explore the potential risk management role of an agri‐environmental scheme.

Keywords: agri‐environmental schemes, farm behaviour, positive mathematical programming, risk aversion

Suggested Citation

Arata, Linda and Donati, Michele and Sckokai, Paolo and Arfini, Filippo, Incorporating Risk in a Positive Mathematical Programming Framework: A Dual Approach (April 2017). Australian Journal of Agricultural and Resource Economics, Vol. 61, Issue 2, pp. 265-284, 2017, Available at SSRN: https://ssrn.com/abstract=2945728 or http://dx.doi.org/10.1111/1467-8489.12199

Linda Arata (Contact Author)

Catholic University of the Sacred Heart of Milan - Catholic University of the Sacred Heart of Piacenza ( email )

Via Emilia Parmense, 84
Piacenza, 29122
Italy
+39 0523 599447 (Phone)

Michele Donati

Universita Degli Studi Di Parma ( email )

via Università, 12
Parma, P.IVA 0030
United States

Paolo Sckokai

Universita Cattolica, Piacenza ( email )

Via Emilia Parmense 84
Piacenza, Piacenza 29122
Italy

Filippo Arfini

University of Parma ( email )

Via Amendola 10
Parma, 43100
United States

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