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Quantifying Gains To Risk Diversification Using Certainty Equivalence In A Mean-Variance Model: An Application To Florida Citrus

Published online by Cambridge University Press:  09 September 2016

Allen M. Featherstone  and
Charles B. Moss
Allen M. Featherstone
Affiliation:
Agricultural Economics, Kansas State University
Charles B. Moss
Affiliation:
Food and Resource Economics, University of Florida
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Abstract

The marginal benefit and cost of diversification for Florida orange producers is analyzed using certainty equivalents. Results indicate that for moderate and high levels of risk aversion, diversification into strawberry, grapefruit, or additional orange production is not optimal. However, moderately risk averse Florida orange producers can gain by diversifying into grapefruit production if the annual amortized fixed costs can be reduced by as little as 10 percent.

Keywords

certainty equivalencemean-variancediversificationFlorida orange production

Information

Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 22 , Issue 2 , December 1990 , pp. 191 - 197
Copyright
Copyright © Southern Agricultural Economics Association 1990

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