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Title: Economic Risk Analysis of Experimental Cropping Systems Using the SMART Risk Tool

Author
item Ascough Ii, James
item FATHELRAHMAN, EIHAB - Colorado State University
item Vandenberg, Bruce
item HOAG, DANA - Colorado State University
item Ahuja, Lajpat

Submitted to: Meeting Abstract
Publication Type: Abstract Only
Publication Acceptance Date: 6/23/2009
Publication Date: 8/27/2009
Citation: Ascough II, J.C., Fathelrahman, E.M., Vandenberg, B.C., Hoag, D., Ahuja, L.R. 2009. Economic Risk Analysis of Experimental Cropping Systems Using the SMART Risk Tool. Meeting Abstract. p.17-18.

Interpretive Summary: Recently, a variant of stochastic dominance called stochastic efficiency with respect to a function (SERF) has been developed and applied. Unlike traditional stochastic dominance approaches, SERF uses the concept of certainty equivalents (CEs) to rank a set of risk-efficient alternatives instead of finding a subset of dominated alternatives. This paper describes the Screening and Multivariate Analysis for Risk and Tradeoffs (SMART) software package for integrated economic and environmental risk analysis. SMART is both a web-based and MS Excel spreadsheet application that ranks risky alternatives using the CE and SERF concepts described above. The SMART software functions as a risk visualization tool for graphically displaying the CE at various levels of decision maker attitude towards risk (e.g., risk neutral or risk averse). SMART is used to evaluate the efficacy of the SERF methodology for no-till systems using 20 years (1987-2006) of economic budget data collected from an on-going, long-term experiment at three locations in Colorado along a gradient of low (Sterling), medium (Stratton), and high (Walsh) potential evapotranspiration. Specifically, the SERF approach implemented in SMART is used to examine a wheat-fallow rotation under different historical climate scenarios (e.g., drought versus normal rainfall) in order to assess risk-efficiency in terms of maximizing economic profitability (gross margin and net return) across a range of risk aversion preferences.

Technical Abstract: Recently, a variant of stochastic dominance called stochastic efficiency with respect to a function (SERF) has been developed and applied. Unlike traditional stochastic dominance approaches, SERF uses the concept of certainty equivalents (CEs) to rank a set of risk-efficient alternatives instead of finding a subset of dominated alternatives. This paper describes the Screening and Multivariate Analysis for Risk and Tradeoffs (SMART) software package for integrated economic and environmental risk analysis. SMART is both a web-based and MS Excel spreadsheet application that ranks risky alternatives using the CE and SERF concepts described above. The SMART software functions as a risk visualization tool for graphically displaying the CE at various levels of decision maker attitude towards risk (e.g., risk neutral or risk averse). SMART is used to evaluate the efficacy of the SERF methodology for no-till systems using 20 years (1987-2006) of economic budget data collected from an on-going, long-term experiment at three locations in Colorado along a gradient of low (Sterling), medium (Stratton), and high (Walsh) potential evapotranspiration. Specifically, the SERF approach implemented in SMART is used to examine a wheat-fallow rotation under different historical climate scenarios (e.g., drought versus normal rainfall) in order to assess risk-efficiency in terms of maximizing economic profitability (gross margin and net return) across a range of risk aversion preferences.