The effect of manager risk attitudes on range improvement decisions

Abstract

Despite the availability of potentially profitable range improvement alternatives, private land ranch managers in the central U.S. are not readily adopting recommended range improvement practices. One explanation for this behavior is that managers may not be willing to accept the increased risk associated with implementing range improvement programs. The objectives of this study were to estimate the expected value and variability of net returns derived from several range improvement practices and use this information to assess the influence that manager risk attitudes have on the selection of range improvement practices. A stochastic range simulation model was used to provide estimates of the expected value and variability of income following the application of several range improvement practices in the Cross Timbers Region. Generalized stochastic dominance procedures were then used to rank these practices for managers characterized by alternative risk attitudes. Results of the analysis illustrate that optimal range improvement practices may be sensitive to manager risk attitudes. Managers willing to accept the possibility of low or negative incomes may prefer more intensive range improvement practices such as application of tebuthiuron for brush management followed by annual prescribed burning. In contrast, risk averse decision makers are inclined to implement lower cost range improvement practices or fail to utilize any range improvement practice.