An MCDM analysis of agricultural risk aversion

Abstract

In modelling farm systems it is widely accepted that risk plays a central role. Furthermore, farmers’ risk aversion determines their decisions in both the short and the long run. This paper presents a methodology based on multiple criteria mathematical programming to obtain relative and absolute risk aversion coefficients. We rely on multiattribute utility theory to elicit a separable additive multiattribute utility function and estimate the risk aversion coefficients, and apply this methodology to an irrigated area of Northern Spain. The results show a wide variety of attitudes to risk among farmers, who usually exhibit decreasing absolute risk aversion and constant relative risk aversion.