Risk and Household Grain Management in Developing Countries
نویسنده
چکیده
A dynamic model is presented of a household’s joint production, storage, and trade decisions under price risk, region-wide and idiosyncratic yield risk, and explicit transaction costs. Balancing the goals of profit maximization and hedging against consumption price risk, grain management decisions are nonlinear, interdependent functions of the market price and household grain availability and financial wealth. Model solutions calibrated to Chinese data reveal that grain’s consumption role makes it an attractive from of precautionary saving even when household’s have access to credit, production response to risk is made jointly with savings decisions, limiting the expected income loss associated with risk-coping, and the desire to store grain as a price hedge can explain why subsistence households are frequently net purchasers but rarely net sellers of grain. JEL codes: O12, Q12, C61
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