production risk in multi output industries estimates from norwegian dairy farms farmers who produce multiple outputs are portfolio managers in the sense that they use inputs to balance expected economic return and variance of return this article estimates the structure of the stochastic multioutput production technology in norwegian dairy farming allowing for a more flexible specification of the technology than previous studies we find that an increase in input levels leads primarily to higher output variability and that inputs also influence the covariance of shocks between outputs risk reducing effects of inputs on outputs are primarily present in the covariance functions technical change leads to shifts in the profit distribution over the data period but no welfare improvement for risk averse farmers

how do inputs and weather drive wheat yield volatility the example of germany increases in cereals production risk are commonly related to increases in weather risk we analyze weather induced changes in wheat yield volatility as a systemic weather risk in germany we disentangle however the relative impacts of inputs and weather on regional yield volatility for this purpose we augment a production function with phenologically aggregated weather variables increasing volatility can be traced back to weather changes only in some regions on average inputs explain 49 of the total actual wheat yield volatility while weather explains 43 models with only weather variables deliver biased but reasonable approximations for climate impact research

government as fund of fund and vc fund sponsors effect on employment in portfolio companies governments around the world have set up fund of fund programs to increase the supply of venture capital financing to young growth oriented firms in these programs a government fund of fund acts as limited partner in a venture capital fund the venture capital investment process is hereby delegated to external investors which were selected by the government fund of fund we investigate employment growth in 108 portfolio companies that benefited from the arkimedes fund of fund in flanders accounting for the heterogeneity in the types of venture capital investors managing hybrid funds and the associated goal diversity and resource endowments we find that portfolio companies backed by hybrid independent venture capital funds show greater employment growth than those backed by hybrid captive or hybrid government venture capital funds this finding is relevant because it indicates that the financial objectives of hybrid independent venture capital funds are highly compatible with the government s objective of employment growth as providing companies with superior monitoring and value adding services with the objective of realizing a successful exit creates employment in the process

the participation of new technology based firms in eu funded r d partnerships the role of venture capital this paper investigates the participation of new technology based firms ntbfs in eu funded r d partnerships we examine whether venture capital vc backed firms are more likely to enter these partnerships than their non vc backed peers and the role of the ownership and governance of the vc investor we resort to a mixed method approach we use qualitative information collected through interviews with managers of ntbfs and vc firms to better illustrate our deductively derived theoretical hypotheses that are then tested through a large scale econometric analysis the econometric analysis takes advantage of the vico dataset which includes longitudinal data on 8346 ntbfs from seven european countries observed from 1995 to 2008 out of which 758 were vc backed the econometric results show that vc backing has a strong positive impact on ntbfs participation in eu funded r d partnerships but the magnitude of this effect rapidly decreases with ntbfs prior experience of this type of partnership moreover the magnitude of the impact of vc backing considerably differs depending on the type of investor with bank and government vc exhibiting the strongest positive effects

financing high technology startups in belgium an explorative study the results of an explorative study on the financing of 18 high technology belgian startups are reported on a counts basis the most important sources of financing at the startup are the entrepreneurs and the banks but the sources that provide the largest amounts of funds are the venture capital companies and private investors private investors and venture capitalists have a complementary role with the former investing mostly at the startup and the latter financing the early growth the role of the government universities and other companies is limited

the anatomy of a corporate venturing program factors influencing success the author proposes a classification framework for factors that affect corporate venture success then a database of 37 new venture investments by exxon including 18 venture capital investments is analyzed for insight into the relative affect of these factors on venture technical and financial success this article presents a statistical analysis of those factors which were quantified as a group the venture capital investments were financially far more successful for exxon than the internally initiated ventures this striking difference stimulated the retrospective analysis reported here the author was in a position to observe the program over its entire life span and had first hand knowledge of each venture s technology markets and personnel because of the mix of venture capital and internal investments the author was also in a position to compare the two modes of investment factors affecting venture success are broadly classified as extrinsic and intrinsic extrinsic or environmental factors are those determined by the form of investment sponsorship e g corporate or venture capital and the characteristics of the investment sponsor extrinsic factors are segregated into two categories structural and procedural these factors are defined as the degree of difference between the corporate and venture environment in each category the four structural factors technology market organization and people are summed up as the overall degree of structural congruence the author postulates that the degree of congruence is directly related to venture success within the corporation to take the corporation into new markets some incongruence is required too much incongruence probably pushes the risk of failure too high the corporation s procedures for management of this incongruence will determine the degree to which it can successfully diversify its business the four procedural factors control selection of venture managers incentive compensation and financing are dealt with as differences between the corporate environment and an independent venture environment major differences in procedural factors usually exist between corporate and venture capital sponsored ventures they probably explain to some extent the relative greater financial success of the exxon venture capital investments as a group however the statistical analysis results indicate that the identified intrinsic factors are more important in explaining relative venture success intrinsic factors are those inherent to the venture itself and are subdivided into two categories product related market and technical risk levels and managerial relative experience levels each of the 37 exxon ventures was rated for success and for the intrinsic factors using a simple ordinal range of 3 to 6 values the product related risk factors showed a significant inverse correlation with financial success the level of venture managers prior experience in the venture s target market area and their level of prior general managerial experience showed an even greater correlation with financial success the sample correlation coefficient between the financial success rating sf and the sum of the ratings for prior marketing and managerial experience xs xm was 0 809 with a standard error of only 0 105 selection of the influential extrinsic and intrinsic factors is largely within the control of corporate management an approach to selection of these factors similar to that used by private venture capital fund managers should greatly improve the overall success of internal corporate ventures

multidivisional vs metanational governance of the multinational enterprise the effective and efficient management of diversified business firms that supply multiple products and operate in multiple dynamic markets especially large multinational enterprises mnes builds upon a number of specific governance principles these governance principles allow the alignment of environmental characteristics strategy and organization given the rising need to learn from the world doz et al in their influential harvard business school press book entitled from global to metanational have proposed a new set of governance principles described under the metanational umbrella concept this paper revisits the metanational using a comparative institutional perspective here we contrast multidivisional and metanational governance principles a comparative institutional analysis suggests that the metanational s application potential in terms of actually improving the effectiveness and efficiency of mne governance may be subject to more qualification than suggested by doz et al senior mne management must therefore reflect carefully before substituting metanational governance principles for the more conventional multidivisional ones with established contributions to managerial effectiveness and efficiency

sources of increased instability in indian and u s cereal production recent growth in indian and u s cereal production has been accompanied by a more than proportional increase in the standard deviation of production this study applies variance decomposition procedures to state data on crop production to analyze the sources of this increased instability it is found that production has become significantly more covariate between states and crops largely because of increased yield variability and a loss in offsetting patterns of variation between crop yields in different states these changes may be associated with more variable prices with higher yielding technologies and with a narrowing of the genetic base

determinants of required return in venture capital investments a five country study abstract using two complementary theoretical perspectives we develop hypotheses regarding the determinants of the return required by venture capitalists and test them on a sample of over 200 venture capital companies vccs located in five countries consistent with resource based theory we find that early stage specialists require a significantly higher return than other vccs when investing in later stage ventures consistent with financial theory we find that acquisition buyout specialists require a significantly lower return than other vccs when investing in expansion companies furthermore in comparison to specialists highly stage diversified vccs require a significantly higher return for early stage investments independent vccs require a higher rate of return than captive or public vccs in general higher required returns are associated with vccs who provide more intensity of involvement have shorter expected holding period of the investment and being located in the us or uk in comparison to those in france belgium and the netherlands

the impact of global warming on agriculture a ricardian analysis reply we measure the economic impact of climate on land prices using cross sectional data on climate farmland prices and other economic and geophysical data for almost 3 000 counties in the united states we find that higher temperatures in all seasons except autumn reduce average farm values while more precipitation outside of autumn increases farm values applying the model to a global warming scenario shows a significantly lower estimated impact of global warming on u s agriculture than the traditional production function approach and in one case suggests that even without co sub 2 fertilization global warming may have economic benefits for agriculture 16 refs 5 figs 5 tabs

economic implications of climate change for u s agriculture assessing recent evidence recent studies estimate potential economic impacts of climate change on u s agriculture while results are not directly comparable several big picture lessons can be drawn these broader findings are developed and put into a policy context while the estimated impacts on u s agriculture and the u s economy do not yet justify costly adaptation or mitigation strategies some regional and environmental impacts could be quite severe current policy efforts should focus on reducing climate change uncertainties and increasing farm sector flexibility from a national perspective future agreements to limit greenhouse gas emissions could be partially met through adjustments of farm practices

the rise and fall of subprime mortgages after booming the first half of this decade u s housing activity has retrenched sharply single family building permits have plunged 52 percent and existing home sales have declined 30 percent since their september 2005 peaks a rise in mortgage interest rates that began in the summer of 2005 contributed to the housing market s initial weakness by late 2006 though some signs pointed to renewed stability they proved short lived as loan quality problems sparked a tightening of credit standards on mortgages particularly for newer and riskier products as lenders cut back housing activity began to falter again in spring 2007 accompanied by additional rises in delinquencies and foreclosures late summer financial market turmoil prompted further toughening of mortgage credit standards the recent boom to bust housing cycle raises important questions why did it occur and what role did subprime lending play how is the retrenchment in lending activity affecting housing markets and will it end soon is the housing slowdown spilling over into the broader economy

more than mean effects modeling the effect of climate on the higher order moments of crop yields this article proposes the use of moment functions and maximum entropy techniques as a flexible approach for estimating conditional crop yield distributions we present a moment based model that extends previous approaches and is easily estimated using standard econometric estimators predicted moments under alternative regimes are used as constraints in a maximum entropy framework to analyze the distributional impacts of switching regimes an empirical application for arkansas mississippi and texas upland cotton demonstrates how climate and irrigation affect the shape of the yield distribution and allows us to illustrate several advantages of our moment based maximum entropy approach

top management s attention to discontinuous technological change corporate venture capital as an alert mechanism technological discontinuities pose serious challenges to top managers attention these discontinuities which often occur at the fringes of an industry are usually driven by innovative and often venture capital backed start ups creating new products and transforming existing industries in ways that are difficult for incumbent managers to understand against the backdrop of their existing cognitive schemata however failing to appreciate and embrace successful technological discontinuities might endanger incumbents very existence extending the attention based view we explore whether and how interorganizational relationships guide top managers attention either to or away from technological discontinuities we propose that homophilous relationships e g alliances with industry peers should exhibit a negative relationship with incumbents timely attention to technological discontinuities whereas heterophilous relationships e g with venture capitalists as a result of coinvestments should exhibit a positive relationship furthermore we hypothesize that the status of the partners strengthens the effect of homophilous and heterophilous relationships with the timely attention of top managers to technological discontinuities based on a longitudinal study of the incumbents in four information and communications technology industry sectors we find that heterophilous ties through corporate venture capital cvc coinvesting with high status venture capital firms exhibit a strong positive relationship with timely attention cvc when it connects senior management to high status venture capitalists through coinvestments has a special role in directing top managers attention to technological discontinuities and ensuing business opportunities implications for the understanding of the role of interorganizational ties as structural determinants of top managers attention are discussed

when does corporate venture capital investment create firm value abstract over the past decade billions of dollars have been invested by established companies in entrepreneurial ventures what is often referred to as corporate venture capital yet there is little systematic evidence that corporate venture capital investment creates value to investing firms scholars have suggested that established firms face underlying challenges when investing corporate venture capital namely structural deficiencies inherent in corporate venture capital may inhibit financial gains however firm value may still be created as a result of other benefits from investing primarily providing a window onto novel technology in this paper we propose that corporate venture capital investment will create greater firm value when firms explicitly pursue corporate venture capital to harness novel technology using a panel of cvc investments we present evidence consistent with our proposition the findings are robust to various specifications and remain unchanged even after controlling for unobserved heterogeneity in investing firms our results have important implications for corporate venture capital in particular and technology strategy in general

a model of venture capitalist investment activity the paper describes the activities of venture capitalists as an orderly process involving five sequential steps these are 1 deal origination the processes by which deals enter into consideration as investment prospects 2 deal screening a delineation of key policy variables which delimit investment prospects to a manageable few for in depth evaluation 3 deal evaluation the assessment of perceived risk and expected return on the basis of a weighting of several characteristics of the prospective venture and the decision whether or not to invest as determined by the relative levels of perceived risk and expected return 4 deal structuring the negotiation of the price of the deal namely the equity relinquished to the investor and the covenants which limit the risk of the investor 5 post investment activities the assistance to the venture in the areas of recruiting key executives strategic planning locating expansion financing and orchestrating a merger acquisition or public offering 41 venture capitalists provided data on a total of 90 deals which had received serious consideration in their firms the questionnaire measured the mechanism of initial contact between venture capitalist and entrepreneur the venture s industry the stage of financing and product development ratings of the venture on 23 characteristics an assessment of the potential return and perceived risk and the decision vis i vis whether to invest the modal venture represented in the database was a start up in the electronics industry with a production capability in place and seeking 1 million median in outside financing there is a high degree of cross referrals between venture capitalists particularly for the purposes of locating co investors factor analysis reduced the 23 characteristics of the deal to five underlying dimensions namely 1 market attractiveness size growth and access to customers 2 product differentiation uniqueness patents technical edge profit margin 3 managerial capabilities skills in marketing management finance and the references of the entrepreneur 4 environmental threat resistance technology life cycle barriers to competitive entry insensitivity to business cycles and down side risk protection 5 cash out potential future opportunities to realize capital gains by merger acquisition or public offering the results of regression analyses showed expected return to be determined by market attractiveness and product differentiation r2 0 22 perceived risk is determined by managerial capabilities and environmental threat resistance r2 0 33 finally a discriminant analysis correctly predicted in 89 4 of the cases whether or not a venture capitalist was willing to commit funds to the deal on the basis of the expected return and perceived risk the reactions of seven venture capitalists who reviewed the model s specification were used to test its validity

corporate venture capitalists autonomy obstacles and performance abstract this report presents the results of a formal study of the corporate venture capital community in the united states and is based upon responses to a questionnaire completed by 52 corporate venture capitalists cvcs the central question addressed in this study involves which approach to corporate venture capital is most likely to produce successful results this question was addressed via cluster analysis which segregated the cvc community into two broad classes pilots which are marked by substantial organizational independence and copilots which are highly dependent on corporate management with respect to venture funding and decision authority pilots achieve equal or higher levels of performance and are plagued by far fewer obstacles than their highly dependent counterparts the results suggest the following 1 the corporate venture fund should be established as an independent entity and should have access to a committed separate pool of funds this will enable cvcs to respond aggressively to and manage investment opportunities with minimal corporate interference such an independent entity will defuse justifiable concerns on the part of entrepreneurs related to such interference 2 the fund should be managed by skilled venture professionals who may be drawn from the independent venture community or the small but growing pool of experienced cvcs corporate executives may comprise a part of the management team 3 if the corporate venture fund hopes to attract top quality managers it must be prepared to offer compensation and authority commensurate with their skill level in short corporate venture capitalists should be treated like independent venture capitalists by organizing the fund as an independent entity the political problem associated with establishing compensation levels above those of the corporation can be minimized 4 all cvcs should establish a primary focus on the realization of financial objectives i e return on investment strategic benefit objectives are not necessarily ill advised so long as they do not interfere with sound financial decision making when they do the corporate venture capital process is likely to become less effective for instance a corporate venture fund should only confine itself to investing in a few industries if there are sufficient high grade investment opportunities within those industries to ensure adequate deal flow the venture fund should not be pressured investments that appear exciting from a corporate perspective for technological or marketing reasons but are not financially attractive may well drain resources rather than produce opportunities 5 venture proposals failing on financial criteria might be referred to other parts of the corporation with the purpose of exploring an alternate relationship e g a development contract or joint venture if this is appealing to the corporation a mechanism such as a corporate liaison or reporting system might be established to facilitate the flow of information 6 a corporation should be willing to make a complete commitment of talent and capital if it establishes its own corporate venture fund the corporation should then be willing to accept a limited role if the corporation is unable to accept a limited role with respect to its own fund it may be best for it to participate as an investor in a traditional fund where such limitations will be enforced however this latter approach may significantly dilute or eliminate potential for strategic benefits

efficiency estimation with heteroscedasticity in a panel data model this paper deals with the estimation of efficiency in a panel data framework a oneway error component model ecm is generalized to accommodate firm specific variances for the inefficiency component a multi step procedure is developed to estimate the cost function and predict increase in cost due to inefficiency the model is applied to examine efficiency of ten major investor owned electric utilities in texas during 1966 1985 the production technology is represented by a translog cost function that is assumed to be the same for every utility except for heterogeneous intercepts but it is allowed to shift over time due to technical change the data supports the ecm with firm specific variances and rejects the homoscedastic ecm cost inefficiency is found to vary substantially across utilities ranging from 0 to 28 technical change is found to be quite small less than 1 especially during 1971 1985

corporate venturing allocation of talent and competition for star managers we provide new rationales for corporate venturing based on competition for talented managers as returns to venturing increase firms engage in corporate venturing for reasons other than capturing these returns first higher venturing returns increase managerial compensation to which firms respond by increasing incentives managers increase effort prompting firms to reallocate them to new ventures where the marginal product of effort is highest second as returns to venturing become large corporate venturing emerges as a way to recruit retain managers who would otherwise choose alternative employment we derive several testable empirical predictions about the determinants and structure of corporate venturing

a theory of strategic venture investing some venture capital investors seek purely financial gains while others such as corporations also pursue strategic objectives the paper examines a model where a strategic investor can achieve synergies but can also face a conflict of interest with the entrepreneur if the start up is a complement to the strategic partner it is optimal to obtain funding from the strategic investor if the start up is a mild substitute the entrepreneur prefers an independent venture capitalist with a strong substitute syndication becomes optimal such that the independent venture capitalist is the active lead investor and the strategic partner a passive co investor the expected returns for the entrepreneur are nonmonotonic lowest for a mild substitute and higher for a strong substitute as well as for a complement the paper also explains why a strategic investor often pays a higher valuation than an independent venture capitalist

determinants of venture capital firms preferences regarding the industry diversity and geographic scope of their investments abstract competition is intensifying in the venture capital industry in the u s the number of venture capital firms vcfs tripled from 1980 to 1989 supplier power in the form of institutional investors such as pension funds continues to grow foreign venture capital has grown to the extent that commitments to foreign vcfs exceeded domestic commitments in both 1988 and 1989 further alternative sources of financing for entrepreneurs such as individual investors angels corporations and strategic alliances are increasingly viable options vcfs face pressure to seek lower risk investments improve rates of return and provide value to new venture development surprisingly few scholarly studies have begun to investigate the strategies vcfs are aiming to implement in order to deal with this increasing pressure building on the premise that decisions regarding product market scope are a key component of firm strategy hofer and schendel 1978 this study examined 169 domestic vcfs in order to identify factors that might explain variations in preferences regarding the industry diversity and geographic scope of their investments the sample drawn from california massachusetts and texas represented about 27 of all u s based vcfs in 1987 the year in which the data were gathered in terms of the total size of investment portfolio the average for these 169 vcfs was 69 8 million which is statistically indistinguishable from the u s average of 65 million results indicate that 1 vcfs specializing in early stage ventures prefer less industry diversity and narrower geographic scope relative to other vcfs 2 corporate vcfs i e those owned by non financial corporations prefer less industry diversity but broader geographic scope relative to non corporate vcfs 3 larger vcfs prefer greater industry diversity and broader geographic scope than do smaller vcfs and 4 provision of small business investment companies sbic financing by the vcf has no impact on preferences regarding industry diversity but is associated with a preference for narrower geographic scope one implication of these results is that vcfs in the u s are not homogeneous as regards the intended product market scope of their portfolios this in turn holds implications not only for vcfs but also for their suppliers limited partners buyers entrepreneurs and policy makers vcfs can no longer rely on haphazard investment schemes they need to attract investors by virtue of the benefits offered by their portfolio strategy and they need to attract superior investments via offering valueadded services and know how potential investors in venture capital will want to examine for example the impact on risk and return of investing smaller amounts in several vcfs at one extreme versus making one large investment in a very diversified vcf at the other extreme the results of this and other studies suggest that outcomes timing magnitude and riskiness of returns of choosing such alternatives will vary widely and will depend in great part on the strategies of the vcfs involved it will not be possible for investors to make wise choices without a full examination of their own objectives and of the profiles of vcfs entrepreneurs with the most attractive ventures have alternative sources of financing to consider and should weigh the benefits of being financed and supported by various vcfs as part of the vcfs portfolios knowing a vcf s preferences regarding product market scope improves their chances of approaching and selecting the right fit and for those entrepreneurs with a narrower set of options such knowledge may make the difference between receiving and not receiving financing in a timely manner finally policy makers may be able to make use of knowledge of the forces that influence the investment strategies of vcfs presently concerns for policy makers may include the gap in seed capital increased foreign presence in the u s market and the export of promising innovative technology via alliances with foreign firms all of these factors are influenced by the strategies pursued by vcfs as they jockey for position in the increasingly competitive venture capital market

in search of complementary assets the determinants of alliance formation of high tech start ups abstract why do new technology based firms ntbfs cooperate starting from teece s teece d j 1986 profiting from technological innovation implications for integration collaboration licensing and public policy research policy 15 285 305 conceptual framework and taking advantage of subsequent literature on alliance formation in the resource and competence based tradition and in the social structure perspective we derive an empirical model that aims at highlighting the inducements and obstacles that these firms face in alliance formation according to firm specific characteristics and the nature of the alliance in particular a distinction is made between exploitative commercial alliances and explorative technological alliances the econometric estimates based on a large sample of italian young high tech firms that are observed from 1994 to 2003 provide strong evidence supporting two key intuitions of teece s work first the combination of specialized complementary assets appears to be a key driver of the formation of exploitative commercial alliances by ntbfs more specifically patent holding affects positively the likelihood to establish commercial alliances but this propensity is found to rapidly decrease with firm size suggesting that as long as ntbfs become larger and possess specialized commercial assets their urge for commercial alliances diminishes second following the parallelism set forth by teece between search for alliance partners and access to external financing the analysis indicates that potentially beneficial alliances may not take place because of the high transaction costs faced by smaller ntbfs in this respect our results clearly support the view that sponsor institutions as public research organizations venture and corporate venture capitalists may sensibly reduce these costs and that their role crucially depends on both the identity of the sponsor and the type of alliance

on technological change in crop yields technological changes in agriculture tend to alter the mass associated with segments or components of the yield distribution as opposed to simply shifting the entire distribution upwards we propose modeling crop yields using mixtures with embedded trend functions to account for potentially different rates of technological change in different components of the yield distribution by doing so we can test some interesting and previously untested hypotheses about the data generating process of yields for example 1 is the rate of technological change equivalent across components and 2 are the probabilities of components constant over time our results technological change is not equivalent across components and probabilities tend not to have changed significantly over time have implications for modeling yields we find estimated conditional yield densities are quite different when unique trend functions are embedded inside the mixture components versus estimating the same mixture with detrended data also we prove different rates of technological change in different components lead to nonconstant variance with respect to time i e heteroscedasticity we present two applications of the proposed yield model the first application considers climate determinants of component membership where our results are consistent with the literature for climate determinants of yields the second application compares the proposed yield model to usda s current rating methodology for area yield crop insurance contracts and finds the proposed model may lead to more accurate rates

does risk matter the case of wage labour allocation by owner cultivators this study analyses the impact of revenue risk on the hiring out behaviour of owner cultivators since hiring out is not certain labour market risk is also allowed for a large sample of owner cultivators residing in semi arid regions in india and hence subject to high production and labour market risks is used for this purpose it is found that possibly because production risks carry forward into the local labour market households are unable to use the labour market as a hedge against production risk we also find that labour force participation is positively affected by increases in the real wage rate a result that is contrary to the findings of earlier studies using data from less developed agriculture several other insights also result

an analysis of the impact of climate change on crop yields and yield variability this paper develops an econometric model of stochastic production functions to quantify the impacts of climatic variables on the mean variance and covariance of crop yields the estimates of the production function parameters and their elasticities are utilized to analyse the impacts of the projected climate change on agriculture the results show that the climate change will have modest effects on the mean crop yields but will significantly reduce the variance and covariance for most of the crops considered the results have implications for allocations of agricultural land among crops and for crop production mix

stochastic technology risk preferences and adoption of site specific technologies a model of farmer decision making is developed to determine the extent to which uncertainties about soil fertility and weather affect the value of site specific technologies ssts using jointly estimated risk and technology parameters uncertainty can lead risk averse farmers to apply more fertilizers and generate more pollution than in the certainty case ignoring uncertainty and risk aversion would overestimate the economic and environmental benefits of ssts and underestimate the subsidy required to induce adoption accounting for uncertainties and risk preferences might explain the low observed adoption rates of ssts improving the accuracy of ssts would increase the incentives for adoption

management of climate risks in agriculture will weather derivatives permeate it is a matter of common knowledge that weather represents the major source of uncertainty in crop production it is to be expected that weather fluctuations will increase in the future due to climate change traditionally farmers tried to protect themselves against weather related yield variations by buying insurances more recently there has been a discussion regarding the use of weather derivatives to safeguard against volumetric risks although weather derivatives display advantages over traditional insurances there is only a relatively small market for these products in agriculture this is partly attributed to the fact that it is unclear whether and to what extent weather derivatives are a useful instrument of risk management in agriculture this study applies real yield and weather data from northeast germany in order to quantify the risk reducing effect that can be achieved in wheat production by using precipitation options to do so stochastic simulation is used the hedging effectiveness is c