A Portfolio Model of Mixed Farming in Less Developed Countries, with an Application to Project Evaluation in Southeastern Niger (Sahel, Risk, Uncertainty).

To improve on the inclusion of risk in farm planning models, portfolio theory and several concepts of the Capital Asset Pricing Model are employed in this dissertation to derive an optimal portfolio of activities for farmers in Damagaram Takaya, Niger. A methodology is developed to derive the efficient frontier of portfolios when a time-series of data is not available. The model is then used to evaluate three development projects which have been proposed for this region. The results of the model are compared to those of a st and ard profit-maximization model which takes no explicit account of risk. The findings of the two models are quite contradictory. It is argued that the portfolio model has greater power and generality as an evaluation tool than the previous models, more manageable data requirements, and that it may explain the conflicting findings of past risk-related farm planning research. Several possibilities for extending the portfolio model and relaxing some of its assumptions, including the presence of unlimited borrowing and lending of a risk-free asset, are then discussed. A generalization of the model is outlined which would do away with the risk-free asset assumption of the portfolio model. The possibilities for including other capital market imperfections in the model are discussed, along with some tests for the importance of several other assumptions of the model.Ph.D.EconomicsUniversity of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/160077/1/8412754.pd