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Joint Estimation of Risk Preferences and Technology: Flexible Utility of Futility?

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  • Lence, Sergio H.

Abstract

The present study sets up a thought experiment calibrated to represent risks of a high-risk production activity (farming), and investigating whether the structure of risk aversion (i.e., the changes in absolute or relative risk aversion associated with changes in wealth) can be estimated with reasonable precision. Findings strongly suggest that typical production data are unlikely to allow identification of the structure of risk aversion. A flexible utility parameterization is found to worsen technology parameter estimates. Findings also indicate that even under a restricted utility specification, the quality of utility parameters estimated from small samples is very poor.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN with number 9980.

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Date of creation: 2007
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Handle: RePEc:ags:aaea07:9980

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Related research

Keywords: expected utility; risk preferences; production analysis; risk attitudes.; Risk and Uncertainty; C13; D24; D81; Q12.;

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Cited by:
  1. Moro, Daniele & Sckokai, Paolo, 2013. "The impact of decoupled payments on farm choices: Conceptual and methodological challenges," Food Policy, Elsevier, vol. 41(C), pages 28-38.
  2. Cao, Ruixuan & Carpentier, Alain & Gohin, Alexandre, 2011. "Measuring farmers’ risk aversion: the unknown properties of the value function," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114623, European Association of Agricultural Economists.
  3. Vollenweider, Xavier & Di Falco, Salvatore & O'Donoghue, Cathal, 2011. "Risk Preferences and Voluntary Agri-environmental Schemes: Does Risk Aversion Explain the Uptake of the Rural Environment Protection Scheme?," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 115552, European Association of Agricultural Economists.
  4. Awondo, Sebastain N. & Fonsah, Esendugue Greg & Riley, David G., 2012. "Are Tomato-Spotted Wilt Virus Management Tactics Good Enough?," 2012 Annual Meeting, February 4-7, 2012, Birmingham, Alabama 119790, Southern Agricultural Economics Association.
  5. Howard, Gregory E. & Roe, Brian E., 2011. "Comparing the Risk Attitudes of U.S. and German Farmers," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114528, European Association of Agricultural Economists.
  6. Sébastien Foudi, 2012. "Exploitation of soil biota ecosystem services in agriculture: a bioeconomic approach," Working Papers 2012-02, BC3.

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