Farmer risk management behavior and welfare under alternative portfolios of risk instruments.

摘要

Agricultural returns are risky because production is highly sensitive to weather, disease, and pests. Production risk contributes to price variability because of biological time lags, inelastic demand, and asset fixity. Farmer income risk comes from the joint effect of price and yield risks. Futures, options, crop insurance, and government programs can be used to manage the overall income risk.;A bivariate ARCH model with seasonality is used to capture the time-varying volatilities and excess kurtosis properties of commodity cash and futures prices. A deterministic trend model with nonnormal errors from a hyperbolic sine transformation is used to characterize yields based on the limited sample size and asymmetric distribution. Because the distributions and income structure are complicated, numerical multivariate distributions for prices and yields are simulated, and numerical results are analyzed in an expected utility framework.;The results suggest crop insurance is usually more valuable than the futures and options because yield is generally more volatile than price. Futures and options may be used to "cross hedge" yield risk if price and yield are correlated.;With futures and options, the value of the government program is derived primarily from the implicit subsidy, so it decreases as the subsidy is reduced and its risk reducing effect is not important when futures and options are available.;Existing research tends to study particular risk management instruments in isolation from others. This dissertation studies farmers' optimal use of alternative instruments in a portfolio setting and the resulting welfare. Current political debates are concerned with the budgetary cost of supporting crop insurance and government programs. Potential policy changes in the crop insurance and government program may significantly impact a farmer's risk management behavior and welfare. Some of these effects are analyzed in this dissertation.;There is a tradeoff between the yield basis risk using area yield crop insurance (AYCI) and the individual yield crop insurance (IYCI) premium. AYCI may provide higher welfare gain than IYCI while significantly reducing the government cost, if the IYCI premium is above the actuarially fair level, yield basis risk is low, or AYCI trigger yield restrictions are above IYCI levels.