Dynamic Econometric Models of Crop Investment in Manitoba and Production under Risk Aversion and Uncertainty

Earlier studies in the OECD project on decoupling estimated static models of crop production incorporating risk aversion, following the analytical framework in OECD (2001). In contrast, this paper studies primarily dynamic models of crop investment. The province of Manitoba is selected as an example of Canadian prairie crop production, and investment is defined as current expenditure on machinery and equipment for Manitoba crop production (the data are not crop specific). This is the first econometric study of dynamic crop investment decisions for Canada, and as far as can be ascertained this is the first econometric study for any country of dynamic crop investment under risk aversion. Econometric results are used to simulate impacts of agricultural programmes on crop investment.