Risk in farm decision-making: a case of crop selection in two Malaysian districts
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1981
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University of Hawaii at Manoa
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Efforts by the Malaysian government to increase fruit production over the last two decades have not been successful and a large quantity of fruit is still being imported. A review of literature has shown that considerable interest in the influence of risk and uncertainty in farmers' decision-making processes exists, but researchers are still unable to agree on the role of risk in agricultural development. It is hypothesized that the farmers' attitude towards risk results in a reluctance to actively participate in the Malaysian government's development programs. Farmer's risk attitudes are modeled using the Cobb-Douglas, transcendental, negative-exponential, and conjoint measurement utility functions in the first stage of the analysis. The farmers' perception of the riskiness of alternative crops is then measured and a quadratic programming algorithm used to derive the efficient expected mean-variance (E-V) frontier for each farmer. The E-V frontier are then used in conjunction with the utility functions to determine optimal farm plans. Farm plans that maximize expected profit and expected accounting profit (using shadow prices) are also determined. The results reveal that the expected accounting profit and conjoint measurement utility behavior models predict actual behavior better than the other models. The usual market-based expected profit-maximization model is the worst predictor of actual behavior. The ability of the conjoint measurement utility model to predict the farmers' behavior better than the expected profit model suggests that risk preferences matter in crop selection. But the good performance of the expected accounting profit model suggest that other factors also affect the decision-making processes of the farmers. Further analysis of factors affecting the actual investment decisions of the farmers is also carried out. The farmers appear to prefer crops that give low variances of incomes even if the means are also lower. This may be partly due to the role of risk in crop selection and partly to other factors, particularly the availability and intensity of government support programs that improve the provision of planting materials, fertilizers, other inputs, marketing and credit facilities, and extension services. Other factors like financial position of the farmers and their entrepreneurial ability are also found to be important. The interrelated role of all these factors should be considered when formulating programs and policies for the development of the fruit industry.
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Field crops--Selection, Decision making--Mathematical models, Risk--Mathematical models, Fruit growers
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Malaysia
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Theses for the degree of Doctor of Philosophy (University of Hawaii at Manoa). Agricultural and Resource Economics; no. 1514
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