RISK ATTITUDE AND DRYLAND FARM-MANAGEMENT

A model of the dryland farming system in the eastern wheatbelt of Western Australia is briefly described The model named MUDAS, explicitly accounts for climatic and price risk, and dryland farm manangement responses to such risk, assuming certain risk attitudes of the farmer. The management decisions associated with various risk attitudes, ranging from risk neutrality to extreme risk aversion, are presented. These decisions are compared and contrasted assuming two price scenarios. Results show that in both price scenarios the effect of increased risk aversion was to shift resources away from cropping toward the livestock enterprise and to change the tactical management of the farming system. In particular, increased risk aversion reduced the area of crop in the favourable weather-years and enabled pastures to be more productive thereby supporting more sheep at higher stocking rates.