The impact of the COVID-19 epidemic on agricultural production strategy from the perspective of loss aversion

Abstract

Agricultural products have the characteristics of high perishability, short life cycles, and low salvage, and agricultural production is easily affected by uncontrollable natural conditions. Therefore, farmers will face great risk when making agricultural production decisions. In addition, farmers have a high demand for basic income security, so they are typically loss-averse decision-makers. Simultaneously, the impact of the COVID-19 epidemic has undoubtedly increased their loss aversion. The piecewise utility function is an effective model for investigating decision-making with consideration of loss aversion, in which the loss aversion parameter will be adjusted by the epidemic to a certain degree. We innovatively involve the impact of COVID-19 epidemic by a quantitative correction factor in the loss-averse newsvendor model to deal with the decision-making problem of agricultural production and investigate the influences of the epidemic and farmers’ loss aversion degree on the optimal production quantity and profits as well as the relationship between the epidemic situation and loss aversion. Through model analysis and numerical experiments on a specific agricultural product by Matlab software, it is found that the effect caused by the epidemic and the increased level of loss aversion will reduce farmers’ production and income. Therefore, it is necessary to strengthen regular epidemic prevention and control and formulate corresponding support policies to stimulate farmers’ production motivation. Maintaining relative stability in the agricultural market demand can also alleviate the negative impact of the epidemic to a certain extent. Faced with the impact of the epidemic, farmers need to do their best to control agricultural production costs to relieve their economic pressure.