Risk Management and Risk Preferences in Agriculture: Discussion

Abstract

These papers indicate that the process of individual decision making under risk is at least conceptually clear. When faced with risky situations, farmers choose risk management strategies based on their appropriate risk preferences. Unfortunately public decision making about agricultural risk management is not this well developed. Issues concern both what public risk management programs are needed for agriculture and the likely impacts of such programs. The papers presented here contain a number of intriguing implications about public risk management issues in agriculture, even though they do not directly address these issues. I will focus my remarks on these implications instead of making a detailed review or criticism of the papers. Agricultural risk is a factor in two important groups of policy issues. One concerns Federal Crop Insurance and disaster payments. At the Western Agricultural Economics Association (WAEA) meetings last year, I discussed the issues concerning the government's role in providing disaster assistance to farmers (Miller and Trock). The U.S. Congress still is debating this question and appears moving toward a greatly expanded federal crop insurance program with some public subsidy to reduce farmer premiums. Answers to questions concerning both farmer needs for this assistance and its structural impacts are critically important if rational economic decisions are to be made on this program. A second group of policy issues that are related to risk concern the structure of agriculture. Here the policy debate is not cast in terms of risk; it concerns family farms, the structure of agriculture, and the impact of policy on this structure. But risk may be one of the key mechanisms that links policy and structural change. The current U.S. farm pro-