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Abstract
This study seeks to determine the workings of a system of
acreage allocation given price and yield uncertainty so as to
identify the role that uncertainty in market output has in
acreage allocation decisions. This study adapts expected utility
as developed by Chavas and Holt. The major findings of this
study are as follows: 1) the effect of wealth in acreage
decisions depends not only on the risk preference of the farm
but also on the risk in and the structure of the output market, 2)
violation of symmetry can come from (i) differing expectations
regarding yield and price, (ii) risk differences in the price and
yield for each crop, and/or (iii) different risk preferences
among farm households, 3) the non-negativity of own
compensated acreage effects would be satisfied if Proposition 1
or 2 holds, 4) production decisions would be affected by price
and yield risk even when all input and output prices change
proportionally, in which case homogeneity would not be
satisfied without Proposition 1, and 5) symmetry of expected
price and yield requires additional restrictions on the ratio of
expected yields and prices and responsiveness of acreage to
cross yield and price.