Wenbin Wu, Ximing Wu, Yu Yvette Zhang and David Leatham
The purpose of this paper is to bring out the development of a flexible model for nonstationary crop yield distributions and its applications to decision-making in crop insurance.
Abstract
Purpose
The purpose of this paper is to bring out the development of a flexible model for nonstationary crop yield distributions and its applications to decision-making in crop insurance.
Design/methodology/approach
The authors design a nonparametric Bayesian approach based on Gaussian process regressions to model crop yields over time. Further flexibility is obtained via Bayesian model averaging that results in mixed Gaussian processes.
Findings
Simulation results on crop insurance premium rates show that the proposed method compares favorably with conventional estimators, especially when the underlying distributions are nonstationary.
Originality/value
Unlike conventional two-stage estimation, the proposed method models nonstationary crop yields in a single stage. The authors further adopt a decision theoretic framework in its empirical application and demonstrate that insurance companies can use the proposed method to effectively identify profitable policies under symmetric or asymmetric loss functions.
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Zijun Wang, David J. Leatham and Thanapat Chaisantikulawat
The moral hazard problem which obstructs external equity financing of farm businesses is studied using the principal‐agent framework. We assume that the supplier of external…
Abstract
The moral hazard problem which obstructs external equity financing of farm businesses is studied using the principal‐agent framework. We assume that the supplier of external equity capital (the principal) cannot directly observe the farmer’s (agent’s) effort, but can observe the random outcome of the effort. We solve for the optimal farm income‐sharing rule that includes an extra share to the agent. The extra share is dependent on the random outcome and is provided to induce optimal effort from the agent. Results show a farmer’s effort is inversely related to the level of risk aversion and the riskiness of the project. Thus, an investor must share more income when a farmer is more risk averse or a project is more risky.
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Trang Dang, David Leatham, Bruce A. McCarl and Ximing Wu
The purpose of this paper is to develop information on the relative efficiency of Farm Credit System (FCS) lenders. Also the evolution of relative efficiency is examined as…
Abstract
Purpose
The purpose of this paper is to develop information on the relative efficiency of Farm Credit System (FCS) lenders. Also the evolution of relative efficiency is examined as influenced by the biofuel boom, the financial crisis, and farm income increases. The paper aims to discuss these issues.
Design/methodology/approach
A stochastic frontier production function is used to estimate technical efficiency of FCS banks and associations.
Findings
A significant difference is found in efficiency between large and small associations and banks. Larger asset bases and management compensation are found to be positively associated with efficiency. Banks are found to have higher technical efficiency than associations (66-46 percent). Association efficiency is found to be increasing indicating likely effects of recent consolidation. The financial crisis was not found to have a significant effect with the bioenergy and farm income booms being likely countervailing forces.
Research limitations/implications
Further work is needed on the impact of the biofuel boom, increases in farm income, and new regulations.
Practical implications
The study provides information and indications of strategies for FCS management including additional consolidation.
Originality/value
This does an updated assessment of FCS efficiency taking into account changes in consolidation, lending practices, and economic conditions. Implications are developed for management actions such as more consolidation. The study also uses a more advanced methodology compared to older studies.
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Ryan Larsen, David Leatham and Kunlapath Sukcharoen
Portfolio theory suggests that geographical diversification of production units could potentially help manage the risks associated with farming, yet little research has been done…
Abstract
Purpose
Portfolio theory suggests that geographical diversification of production units could potentially help manage the risks associated with farming, yet little research has been done to evaluate the effectiveness of a geographical diversification strategy in agriculture. The paper aims to discuss this issue.
Design/methodology/approach
The paper utilizes several tools from modern finance theory, including Conditional Value-at-Risk (CVaR) and copulas, to construct a model for the evaluation of a diversification strategy. The proposed model – the copula-based mean-CVaR model – is then applied to the producer’s acreage allocation problem to examine the potential benefits of risk reduction from a geographical diversification strategy in US wheat farming. Along with the copula-based model, the multivariate-normal mean-CVaR model is also estimated as a benchmark.
Findings
The mean-CVaR optimization results suggest that geographical diversification is a viable risk management strategy from a farm’s profit margin perspective. In addition, the copula-based model appears more appropriate than the traditional multivariate-normal model for conservative agricultural producers who are concerned with the extreme losses of farm profitability in that the later model tends to underestimate the minimum level of risk faced by the producers for a given level of profitability.
Originality/value
The effectiveness of geographical diversification in US wheat farming is evaluated. As a methodological contribution, the copula approach is used to model the joint distribution of profit margins and CVaR is employed as a measure of downside risk.
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Kunlapath Sukcharoen and David J. Leatham
– The purpose of this paper is to examine the degree of dependence and extreme correlation (i.e. tail dependence) among US industry sectors.
Abstract
Purpose
The purpose of this paper is to examine the degree of dependence and extreme correlation (i.e. tail dependence) among US industry sectors.
Design/methodology/approach
This paper makes use of both conventional measures of dependence (the Pearson’s correlation coefficient, Spearman’s rho and Kendall’s tau) and copula measures of extreme correlations (including the same-direction and cross-tail dependence coefficients) to explore sector diversification opportunities. The paper splits the full sample in three periods, namely, 1995 to 2000, 2001 to 2006 and 2007 to 2012, to access the extent to which the dependence results change through time.
Findings
This research provides three important findings. First, the degree of dependence and same-direction extreme correlations are high, whereas the cross-extreme correlations are considerably low. Second, the sector pairs offering the best and worst tail diversification change across sample periods. Third, the traditional dependence measures suggest that benefits for sector diversification have decreased over all sample periods, while the potential for sector diversification during extreme events has just started to disappear in the most recent period.
Practical implications
An investor should consider both the normal co-movements and extreme co-movements among sector indices to maximize diversification benefits.
Originality/value
Given the limited empirical investigations of the degree of dependence and extreme correlation at a sector level, the results from this research should provide additional and valuable information for both investors and empirical researchers about portfolio diversification and risk management.
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In the Court of Appeal last summer, when Van Den Berghs and Jurgens Limited (belonging to the Unilever giant organization) sought a reversal of the decision of the trial judge…
Abstract
In the Court of Appeal last summer, when Van Den Berghs and Jurgens Limited (belonging to the Unilever giant organization) sought a reversal of the decision of the trial judge that their television advertisements of Stork margarine did not contravene Reg. 9, Margarine Regulations, 1967—an action which their Lordships described as fierce but friendly—there were some piercing criticisms by the Court on the phrasing of the Regulations, which was described as “ridiculous”, “illogical” and as “absurdities”. They also remarked upon the fact that from 1971 to 1975, after the Regulations became operative, and seven years from the date they were made, no complaint from enforcement authorities and officers or the organizations normally consulted during the making of such regulations were made, until the Butter Information Council, protecting the interests of the dairy trade and dairy producers, suggested the long‐standing advertisements of Reg. 9. An example of how the interests of descriptions and uses of the word “butter” infringements of Reg. 9. An example af how the interests of enforcement, consumer protection, &c, are not identical with trade interests, who see in legislation, accepted by the first, as injuring sections of the trade. (There is no evidence that the Butter Information Council was one of the organizations consulted by the MAFF before making the Regulations.) The Independant Broadcasting Authority on receiving the Council's complaint and obtaining legal advice, banned plaintiffs' advertisements and suggested they seek a declaration that the said advertisements did not infringe the Regulations. This they did and were refused such a declaration by the trial judge in the Chancery Division, whereupon they went to the Court of Appeal, and it was here, in the course of a very thorough and searching examination of the question and, in particular, the Margarine Regulations, that His Appellate Lordship made use of the critical phrases we have quoted.
The purpose of this research is to explore the apparent ambivalence towards the management of racial diversity.
Abstract
Purpose
The purpose of this research is to explore the apparent ambivalence towards the management of racial diversity.
Design/methodology/approach
The paper is based on a case study undertaken in a large London NHS teaching hospital. Having reviewed the dichotomy in the available literature, the case study focuses on identifying drivers and barriers to the management of racial diversity within the organisation.
Findings
Findings are that the drivers towards the management of racial diversity, and the barriers and resisting forces against the management of racial diversity that are to be found in the literature, were all discovered at the hospital. However, there were additional drivers towards the management of racial diversity found at the hospital that were not present in the literature. Some of the literature presents a rather simplistic vision of how to achieve the successful management of racial diversity. Research at the hospital has indicated that the achievement of the management of racial diversity is highly complex and not likely to be easily attained in a short time frame.
Research limitations/implications
The methodology applied is appropriate, generating data to facilitate discussion and draw specific conclusions from. A perceived limitation is the single case approach; however Remenyi et al. argues this can be enough to add to the body of knowledge.
Practical implications
Recommendations for the management of racial diversity at the hospital and elsewhere are suggested. Specific recommendations for future research are made.
Originality/value
The research questions have attempted to draw out the ambiguity towards the management of racial diversity within the organisation. Lord Taylor of Warwick describes the management of racial diversity as “a journey, not a destination”. This paper explores how far the hospital has travelled on that journey.
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Aarhus Kommunes Biblioteker (Teknisk Bibliotek), Ingerslevs Plads 7, Aarhus, Denmark. Representative: V. NEDERGAARD PEDERSEN (Librarian).