Farm Level Analysis of Risk, and Risk Management Strategies and Policies: Evidence from German Crop Farms

This paper describes farmer’s exposures to risks at the individual farm level and develops a model representing the decisions of an individual risk averse farmer facing variability in both prices and yields. A set of stylised risk market instruments is represented. The model is calibrated using farm level data from Germany. Monte-Carlo simulations of the random variables are run, and the corresponding optimal responses are obtained. The main focus of this paper is the interactions between government payments and the farmers’ use of risk market instruments in terms of the potential crowding out of such instruments and impacts on farm return and welfare. Unlike other studies this paper models farming response to payments in terms of production and the use of risk market instruments that are endogenous. Single farm payment mitigates farmer’s efforts to reduce farming risk by the potential crowding out of substitutive strategies. Optimal policy crucially depends on the government objective, for instance risk reduction versus farmers’ welfare.


Issue Date:
2009
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/51729
Total Pages:
17
JEL Codes:
D81; Q12
Series Statement:
Contributed paper
231




 Record created 2017-04-01, last modified 2017-08-25

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