Dear Sainath

You say

The regionís farmers could be trading one volatility for another. (via)

In your world, does having a Plan B increase risk?

Update: OK, so my point was not clear, but the article is. The farmers are not getting married to soya bean. They are planting it this year and they can return to cotton next year – the article itself predicts that they will, when the price of cotton moves back up. The two crops could be individually as volatile as they want. But unless their volatilities are perfectly correlated -the evidence of the article indicates that they are not-† when the two are combined,† their effect on the farmer’s fortune will be to reduce volatility.

2 thoughts on “Dear Sainath

  1. If Plans A and B have similar volatility, how else does one state that? How did you arrive at “increased risk”?

  2. More explanation please.
    Doesn’t “having a Plan B” mean that *while* you are acting on Plan A, you have a Plan B that you can move to if things don’t work out? Once you start acting on Plan B, doesn’t that become the new Plan A?
    A farmer who has already shifted from Cotton to Soyabean has moved from Risk(CT) to Risk(SB), that’s all. His Risk(Crop) score earlier was Risk(CT) minus a mitigation factor because he had a Plan B. Once he moved to Risk(SB) though, it is difficult to say whether Risk(Crop) is lower or higher without knowing more.
    In fact, unless the farmer is growing both CT and SB at the same time, I doubt if there would even be a mitigation factor.
    Or, I have not understood what you’re trying to say. Now, where is my coffee?

Comments are closed.