The Trade-off between Return and Risk in Farm Enterprise Choice

A modified linear programming alternative, Hazell's minimization of total absolute deviations (MOTAD) model, is used to address an enterprise choice problem involving production of grain crops, processing tomatoes, and/or processing cucumbers. These enterprise alternatives differ substantially...

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Bibliographic Details
Published in:North Central journal of agricultural economics 1979-01, Vol.1 (1), p.15-21
Main Authors: Schurle, Bryan W., Erven, Bernard L.
Format: Article
Language:English
Subjects:
Agricultural economics
Crop economics
Crop harvesting
Crops
Cucumbers
Grains
Specialty crops
Tomatoes
Variable costs
Vegetable farms
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Summary:A modified linear programming alternative, Hazell's minimization of total absolute deviations (MOTAD) model, is used to address an enterprise choice problem involving production of grain crops, processing tomatoes, and/or processing cucumbers. These enterprise alternatives differ substantially in average net return and income variability. The MOTAD procedure was found useful for handling such risk in an explicit manner. The efficiency frontiers and accompanying farm plans permit a farm decision maker to evaluate the trade-offs between return and risk. Tomatoes and cucumbers substantially extend the range of return and risk possibilities relative to those with only corn, soybeans, and wheat in the model. The diversification opportunities provided by the specialty crops reduce the overall risk associated with each level of return when only grain crops are included.
ISSN:0191-9016
DOI:10.2307/1349312