Empirical Evaluation of the Risk and Cost Effects of Geographic Diversification in Central Illinois Grain Farms
Nartea, Gilbert Valenton
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https://hdl.handle.net/2142/72181
Description
Title
Empirical Evaluation of the Risk and Cost Effects of Geographic Diversification in Central Illinois Grain Farms
Author(s)
Nartea, Gilbert Valenton
Issue Date
1994
Doctoral Committee Chair(s)
Barry, Peter J.
Department of Study
Agricultural Economics
Discipline
Agricultural Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Agriculture, General
Economics, Agricultural
Economics, Commerce-Business
Abstract
The risk and cost effects of geographic diversification in central Illinois were deterministically simulated in representative grain farms, using tract-level yield data to estimate the relationship between correlation of yield and distance between tracts. The results indicate that the costs involved in transporting machines and equipment from tract to tract, far outweigh the derived risk (variance) reduction benefits. Survey results also showed that farmers appear to be aware of this unfavorable tradeoff. The results of the simulation also indicate that while geographic diversification may not be an attractive risk management strategy for the individual farmer, it holds promise for large institutional investors who do not have to deal with transporting machines and equipment between tracts.
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