publication . Article . 2012

Can rent adjustment clauses reduce the income risk of farms?

Hotopp, Henning; Mußhoff, Oliver;
Open Access
  • Published: 01 Jan 2012
Abstract
Risk management is gaining importance in agriculture. In addition to traditional instruments, new risk management instruments are increasingly being proposed. These proposals include the rent adjustment clauses (RACs), which seem to be an unusual instrument at first sight. In contrast with conventional instruments, RACs intentionally allow fixed-cost ‘rent payments’ to fluctuate. We investigate the whole-farm risk reduction potential of different types of RACs via a historical simulation. The change in standard deviation and the value at risk (VaR) of the total gross margin (TGM) measure risk reduction potential. Our results revealed that RACs contribute to ...
Subjects
free text keywords: Risk management, rent adjustment clause, moral hazard, basis risk, weather index, value at risk, Farm Management, Financial Economics, Land Economics/Use, Risk and Uncertainty,
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