The main objective of this research was to develop the methods and procedures to more
accurately quantify the trade-offs between improving production risk and environmental
degradation using state-contingent theory to quantify economic and environmental risk with
empirical distributions.
The first step in developing the economic-environmental trade-offs is to model the risk efficiency
of fertiliser applications through the development of a utility maximisation programming model.
Separate state-contingent nitrogen maize yield response functions estimated from simulated
crop yields for each state of nature characterise production risk empirically. The unexplained
variability not captured by the response function is taken into account by adding the residuals to
the expected response to produce a stochastic response function. The same procedure
quantified the environmental fate of fertiliser applications. An upper partial moment (UPM)
ensured that the optimised farmersâ response complied with an environmental pollution goal of
28kg/ha. The upper frequency method (UFM) was developed to ensure a stricter probability
bound which was used to determine the conservativeness of the UPM.
The results showed that the state-contingent representation of production risk were able to
capture the changes in outcome variability without any distributional assumptions. More
importantly, fertiliser can act as a risk-reducing input, risk-increasing input or both depending on
soil choice while not considering the environment. The risk-reducing nature of fertiliser
emphasises the importance of taking risk preferences into account when modelling economicenvironmental
trade-offs. The UPM results indicated that an environmental constraint hold
substantial compliance costs for agricultural producers. To minimise compliance costs
producers had to make extensive and intensive margin changes to ensure compliance. Soil
choice is identified as being more important than fertiliser application method in reducing
compliance costs. An interesting finding is that environmental compliance resulted in fertiliser
being a risk-reducing input. Comparison of the modelling results of the UPM and UFM showed
that the UPM is very conservative in estimating the economic-environmental trade-offs. The size
of the conservativeness is very situation specific and is determined by the combination of fixed
resources used, fertiliser application method, compliance probability and the conservativeness
measure used.
The main conclusion is that state-contingent theory provides the opportunity to model the impact
of management decisions on outcome variability due to the effect of the state of nature in which
the production decision is made and not due to the input use decision. The state-contingent
theory is therefore the more appropriate mechanism to model the influence of uncertainty on
production risk and more importantly environmental risk. The application of the state-contingent theory requires transformation functions, which captures the relationship between management
decisions and outcome variability due to the state of nature. Much more research is necessary
on the development of appropriate transformation functions.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:ufs/oai:etd.uovs.ac.za:etd-08192014-151915 |
| Date | 19 August 2014 |
| Creators | Matthews, Nicolette |
| Contributors | Prof B Grove |
| Publisher | University of the Free State |
| Source Sets | South African National ETD Portal |
| Language | en-uk |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://etd.uovs.ac.za//theses/available/etd-08192014-151915/restricted/ |
| Rights | unrestricted, I hereby certify that, if appropriate, I have obtained and attached hereto a written permission statement from the owner(s) of each third party copyrighted matter to be included in my thesis, dissertation, or project report, allowing distribution as specified below. I certify that the version I submitted is the same as that approved by my advisory committee. I hereby grant to University Free State or its agents the non-exclusive license to archive and make accessible, under the conditions specified below, my thesis, dissertation, or project report in whole or in part in all forms of media, now or hereafter known. I retain all other ownership rights to the copyright of the thesis, dissertation or project report. I also retain the right to use in future works (such as articles or books) all or part of this thesis, dissertation, or project report. |
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