|Insure or endure? Exploring the determinants of risk management strategy diversity
Winsen, F.H. van; Mey, Yann de; Passel, S. van; Vancauteren, Mark ; Wauters, E. - \ 2016
|Farm household risk balancing: empirical evidence from Switzerland
Mey, Yann de; Wauters, E. ; Schmid, D. ; Passel, S. van; Vancauteren, Mark ; Lips, M. - \ 2016
Farm risk; off-farm risk; financial risk; off-farm income; consumption; Farm Management; Risk and Uncertainty
This paper presents the first empirical evidence on household risk balancing behavior, i.e., strategic off-farm decisions in response to changes in expected business risk. Using Swiss FADN data, we estimate a fixed effects seemingly unrelated regression model to analyze how farm households jointly alter their levels of debt, off-farm income and consumption. Evidence suggests that in response to changes in expected business risk, farm households make strategic off-farm decisions. Our study demonstrates that part of the behavioral risk response of farm households is ignored when focusing solely on farm-level analyses and illustrates the relevance of the household risk balancing framework.
Farm household risk balancing: empirical evidence from Switzerland
Mey, Yann de; Wauters, E. ; Schmid, D. ; Lips, M. ; Vancauteren, Mark ; Passel, S. van - \ 2016
European Review of Agricultural Economics 43 (2016)4. - ISSN 0165-1587 - p. 637 - 662.
farm risk, off-farm risk, financial risk, off-farm income, consumption
Empirical evidence on household risk balancing behaviour is presented by estimating a fixed effects seemingly unrelated regression model using Swiss Farm Accountancy Data Network data. We find that in response to changes in expected business risks, Swiss farm households not only make strategic farm financial risk decisions (original risk balancing), but also make strategic off-farm decisions (household risk balancing) by altering their share of off-farm income and relative consumption. Small farms appear to make more use of household risk balancing strategies whereas large farms conversely make more use of the original risk balancing strategy.
Farm household risk balancing: implications for policy from an EU perspective
Wauters, E. ; Mey, Yann de; Winsen, F. van; Passel, S. van; Vancauteren, Mark ; Lauwers, L. - \ 2015
Agricultural Finance Review 75 (2015)4. - ISSN 0002-1466 - p. 450 - 468.
– Building on the risk balancing theory and on recent discussions the appropriateness of using farm income maximization as behavioural assumption, this paper extends the risk balancing framework by accounting for business-household interactions. The purpose of this paper is to theoretically introduce the concept of farm household risk balancing, a theoretical framework in which the farm household sets a constraint on the total household-level risk and balances farm-level and off-farm-level risk.
– The paper argues that the risk behaviour of farmers is better understood by considering risk at the household level. Using an analytical framework, equations are derived linking the farm activities, off-farm activities, consumption and business and private liquidity.
– The framework shows that a farm household that wants to minimize the risk that total household cash flow falls below consumption needs, may exhibit a wide variety of behavioural responses to changes in the policy and economic environment.
– The framework suggests multiple ways for policy makers and individual farmers to support risk management.
– Risk management is at the core of the agricultural policy and it is of paramount importance to be able to understand behavioural responses to market and policy instruments. This paper contributes to that by suggesting that the focus of current risk analysis and management studies may be too narrowly focused at the farm level.