An Economic Analysis of Risk, Management, and Agricultural Technology

By: Chavas, Jean-Paul; Shi, Guanming


Chavas, Jean-Paul; Shi, Guanming, An Economic Analysis of Risk, Management, and Agricultural Technology, Journal of Agricultural and Resource Economics, Volume 40, Issue 1, January 2015, Pages 63-79

This paper uses conditional quantile regression to analyze the effects of genetically modified (GM) seed technology and management on production risk in agriculture, with an application to the distribution of corn yield in Wisconsin. Using the certainty equivalent (CE) as a welfare measure, our analysis decomposes the welfare effects of risk, management, and agricultural technology into two parts: mean effects and risk premium (measuring the cost of risk). We document how biotechnology and management interact to improve agricultural productivity and reduce farm risk exposure. For corn, we find that GM European Corn Borer (GM-ECB) technology consistently increases CE (the increase ranging from +4.6% to +11.8%) and that a significant part of this increase can come from risk reduction. We also show that the benefits of the GMECB biotechnology are heterogeneous: they vary significantly across regions as well as across management schemes