Entrepreneurial Orientation: Analysis of Managing Risk

Abstract

The thesis explores how students, acting as farm managers, mitigate risk by examining and analyzing their risk management decisions on crop choices. The research employs a farm management simulator to examine farming risk mitigation and a survey on demographics and management style to study the students’ level of entrepreneurial orientation (EO). The simulation game allows the student-participants to make decisions on crop choices and crop yield insurance. The EO survey on management style endeavors to unveil the reasons behind farm management decisions.

The research specifically seeks to examine farm management decisions on crop choices (crop diversification) and the use of crop yield insurance, and to evaluate the relationship between farm management decisions and the level of EO. The purpose of the thesis is to verify if the level of EO, constructed from the dimensions identified in literature, helps predict farmers’ inclination towards crop diversification and crop yield insurance, and eventually their net farm income.

The results of the multivariate panel data regression for four decision periods suggest that crop diversification and crop yield insurance have been adopted as mechanisms to mitigate farming risk. The results as well reveal that the participants’ level of EO determines their choice of crops. Participants with a high level of EO score grew higher-risk crops, a result consistent with other empirical studies on entrepreneurship. Besides, participants with high level of EO scores (those who grew higher-risk crops) were more inclined to use crop diversification rather than crop yield insurance. Moreover, the outcome from the panel analysis implies that the level of net farm income depends on the crop portfolio weighted risk index and crop diversification. The greater the crop diversification, the more the net farm income.

The simulation game model mimics the crop choice decision-making activities of real-world farmers. Participants who mitigate risk by employing crop diversification strategies chose higher-risk crops in the simulation game. The study is a step toward developing an analytical basis for future empirical study in farming risk mitigation. Recommendations for future research are developed.