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An Investigation of Production Risk, Risk Preferences and Technical Efficiency: Evidence From Rainfed Lowland Rice Farms in the Philippines

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Author Info
Villano, Renato A.
O'Donnell, Christopher J.
Battese, George E.

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Abstract

Risk plays a vital role in farmers' decisions on input allocations and, therefore, output supply. This paper provides empirical evidence on the estimation of production risk, risk preferences and technical inefficiency. An eight-year panel data set is used for 46 rice farmers from a representative rainfed lowland environment in Central Luzon, Philippines. The heteroskedastic and stochastic frontier frameworks are reconciled and extended to accommodate the risk preferences of farmers in an analysis of production risk. Results show that technical inefficiency is overstated in risky production environments where farmers are risk-averse.

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Paper provided by University of New England, School of Economics in its series Working Papers with number 12953.

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Date of creation: 2005
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Handle: RePEc:ags:uneewp:12953

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Related research
Keywords: production risk; risk preferences; technical efficiency; Productivity Analysis; Risk and Uncertainty;

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References listed on IDEAS
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  1. Jaenicke, Edward C. & Larson, James A., 2001. "Production Risk Revisited In A Stochastic Frontier Framework: Evaluating Noise And Inefficiency In Cover Crop Systems," 2001 Annual meeting, August 5-8, Chicago, IL 20477, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Kumbhakar, Sabul C., 1993. "Production risk, technical efficiency, and panel data," Economics Letters, Elsevier, vol. 41(1), pages 11-16. [Downloadable!] (restricted)
  3. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August. [Downloadable!] (restricted)
  4. Moschini, GianCarlo & Hennessy, David A., 2002. "Uncertainty, Risk Aversion, and Risk Management for Agricultural Producers," Staff General Research Papers 5323, Iowa State University, Department of Economics.
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  5. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June. [Downloadable!] (restricted)
  6. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July. [Downloadable!] (restricted)
  7. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-35, May. [Downloadable!] (restricted)
  8. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-32, December. [Downloadable!] (restricted)
  9. Battese, George E. & Coelli, Tim J., 1988. "Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data," Journal of Econometrics, Elsevier, vol. 38(3), pages 387-399, July. [Downloadable!] (restricted)
  10. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February. [Downloadable!] (restricted)
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