The Role of Risk and Risk-Aversion in Adoption of Alternative Marketing Arrangements by the U.S. Farmers

Abstract The objective of this paper is to analyze the relationship between farmers’ risk-aversions and the riskiness of various agricultural enterprises to see which marketing arrangements would typically emerge. Relying on the basic agency theory model we hypothesize the prevalence of alternative marketing arrangements (AMAs) in situations with high-risk averse farmers and high-risk enterprises and the prevalence of spot (cash) markets for low risk-averse participants and less risky enterprises. Our empirical tests are carried out using the 2004 Agricultural Resource Management Survey (ARMS). The empirical results are largely supportive of the agency theory of contract choice.