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A New Mean Standard Deviation Utility Function and the Behaviour Towards Risk of Specialist Irish Agricultural Producers: 1988-1997

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  • Boyle, Gerry

    (National University of Ireland Maynooth)

  • Conniffe, Denis

    (National University of Ireland Maynooth)

  • McQuinn, Kieran

    (Central Bank and Financial Services Authority of Ireland)

Abstract

This paper employs a new mean-standard deviation utility (MSU) function with more general properties than traditionally employed function in the agricultural economics literature to explore the risk preferences of Irish barley producers between 1988 and 1997. During this period EU cereal producers were subject to major policy reforms (MacSharry Reforms) that may have influenced the nature of producers' risk attitudes. Our findings support the proposed function in preference to the Linear Mean Variance (LMV) function. We find that Irish cereal producers are highly risk averse but their degree of risk aversion falls appreciably in the period before and following the MacSharry Reforms. We also find that the majority of Irish producers exhibit increasing absolute risk aversion (IARA) but the proportion displaying DARA increases substantially following the 1992 Reforms. The policy implications of our results are discussed.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 5/RT/05.

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Length: 29 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:cbi:wpaper:5/rt/05

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  1. Saha, Atanu, 1997. "Risk Preference Estimation in the Nonlinear Mean Standard Deviation Approach," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 35(4), pages 770-82, October.
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  12. Pagan, Adrian & Ullah, Aman, 1988. "The Econometric Analysis of Models with Risk Terms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 3(2), pages 87-105, April.
  13. Robert W. Ackrill, 2003. "EU Enlargement, the CAP and the Cost of Direct Payments: A Note," Journal of Agricultural Economics, Wiley Blackwell, Wiley Blackwell, vol. 54(1), pages 73-78.
  14. Peter Reinhard Hansen, 2001. "An Unbiased and Powerful Test for Superior Predictive Ability," Working Papers 2001-06, Brown University, Department of Economics.
  15. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, American Economic Association, vol. 61(1), pages 65-73, March.
  16. Sckokai, Paolo & Moro, Daniele, 2002. "Modelling The Cap Arable Crop Regime Under Uncertainty," 2002 Annual meeting, July 28-31, Long Beach, CA, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 19860, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  17. Alfons Oude Lansink, 1999. "Area Allocation Under Price Uncertainty on Dutch Arable Farms," Journal of Agricultural Economics, Wiley Blackwell, Wiley Blackwell, vol. 50(1), pages 93-105.
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