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An Approach To The Econometric Estimation Of Attitudes To Risk In Agriculture

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Author Info

  • Bardsley, Peter
  • Harris, Michael

Abstract

A simple model is developed relating the debt and asset portfolio of the farm to the production decision, which leads to a small non-linear system of equations. The system is estimated with time-series cross-sectional data from Australian broadacre agriculture using non-linear three-stage least squares. This gives a new method of estimating risk aversion coefficients by using actual behaviour of farmers in a realistic economic environment, rather than games played in artificial situations. Australian farmers are found to be risk averse, and the partial coefficient of risk aversion decreases with wealth and increases with income. The results are consistent with the results of studies by Binswanger in India and elsewhere using a completely different method. This consistency suggests that the partial risk aversion coefficient is a relatively robust measure of attitudes to risk.

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Bibliographic Info

Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural Economics.

Volume (Year): 31 (1987)
Issue (Month): 02 (August)
Pages:

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Handle: RePEc:ags:ajaeau:22447

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Postal: AARES Central Office Manager, Crawford School of Public Policy, ANU, Canberra ACT 0200
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Related research

Keywords: Research Methods/ Statistical Methods; Risk and Uncertainty;

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References

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  1. Wilson, Paul N. & Eidman, Vernon R., 1983. "An Empirical Test Of The Interval Approach For Estimating Risk Preferences," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 8(02), December.
  2. Hans Binswanger, 1981. "Attitudes toward risk: Theoretical implications of an experiment in rural india," Artefactual Field Experiments 00010, The Field Experiments Website.
  3. Menezes, C F & Hanson, D L, 1970. "On the Theory of Risk Aversion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 481-87, October.
  4. Masson, Robert Tempest, 1972. "The Creation of Risk Aversion by Imperfect Capital Markets," American Economic Review, American Economic Association, vol. 62(1), pages 77-86, March.
  5. Bond, Gary E. & Wonder, Bernard, 1980. "Risk Attitudes Amongst Australian Farmers," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 24(01), April.
  6. Machina, Mark J., 1984. "Temporal risk and the nature of induced preferences," Journal of Economic Theory, Elsevier, vol. 33(2), pages 199-231, August.
  7. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March.
  8. Ockwell, Anthony P. & Batterham, Robert L., 1980. "Nonprice Rationing Of Agricultural Credit By Two Trading Banks," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 24(03), December.
  9. Baltensperger, Ernst, 1978. "Credit Rationing: Issues and Questions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(2), pages 170-83, May.
  10. Lins, David A. & Gabriel, Stephen C. & Sonka, Steven T., 1981. "An Analysis Of The Risk Aversion Of Farm Operators: An Asset Portfolio Approach," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 6(01), July.
  11. Gallant, A. Ronald, 1977. "Three-stage least-squares estimation for a system of simultaneous, nonlinear, implicit equations," Journal of Econometrics, Elsevier, vol. 5(1), pages 71-88, January.
  12. A.P. Ockwell & Robert L. Batterham, 1980. "Nonprice Rationing Of Agricultural Credit By Two Trading Banks," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 24(3), pages 183-195, December.
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