A MODEL FOR THE OPTIMAL RISK MANAGEMENT OF FARM FIRMS

摘要

Risk management is an integrated part of business or firm management and deals with the problem of how to avoid therisk of economic losses when the objective is to maximize expected profit. This paper will focus on the identification,assessment, and prioritization of risks in agriculture followed by a description of procedures for coordinated andeconomical application of resources to control the probability and/or impact of unfortunate events. Besides identifyingthe major risk factors and tools for risk management in agricultural production, the paper will look critically into thecurrent methods for risk management Risk management is typically based on numerical analysis and the concept ofefficiency. None of the methods developed so far actually solve the basic question of how the individual manager shouldbehave so as to optimise the balance between expected profit/income and risk. In the paper, we derive a criterion foroptimal risk management in the sense that we derive the optimal combination of expected income and variance onreturn to capital on the efficient frontier.