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Tests for the Role of Risk Aversion on Input Use

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  • Roosen, Jutta
  • Hennessy, David A.

Abstract

For risk averting agents, risks alter production decisions while the existence of institutions to insure against adverse states of nature will likely restore decisions toward levels under risk neutrality. In this paper, conditions are identified on a stochastic technology to test H sub {0, le} sup {rn}: that risk averters choose smaller input levels than risk neutral agents, and H sub {0,le} sup {ra}: that an increase in risk aversion reduces input use. A robust statistical method (Klecan, McFadden, and McFadden) to test for dominance is adapted to stochastic production relations. It is found that H sub {0, le} sup {rn} is likely true for nitrogen application on Iowa corn. Weaker evidence is found in favor of H sub {0,le} sup {ra}.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10071.

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Date of creation: 01 Feb 2003
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Publication status: Published in American Journal of Agricultural Economics, February 2003, vol. 85 no. 1, pp. 30-43
Handle: RePEc:isu:genres:10071

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Cited by:
  1. Meyer-Aurich, Andreas & Gandorfer, Markus & Rajsic, Predrag, 2013. "Analyzing higher moments of nitrogen response for risk efficient fertilizer application in wheat and corn production," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 150220, Agricultural and Applied Economics Association.
  2. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
  3. Liu, Yucan & Shumway, C. Richard, 2005. "Indirect Utility Maximization under Risk: A Heterogeneous Panel Application," 2005 Annual Meeting, July 6-8, 2005, San Francisco, California, Western Agricultural Economics Association 36307, Western Agricultural Economics Association.
  4. Williamson, James M., 2010. "Does Information Matter? Assessing the Role of Information and Prices in the Nitrogen Fertilizer Management Decision," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado, Agricultural and Applied Economics Association 60892, Agricultural and Applied Economics Association.
  5. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Are farmers in low-rainfall cropping regions under-fertilizing? An Australian case-study," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil, International Association of Agricultural Economists 124976, International Association of Agricultural Economists.
  6. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Revisiting N fertilisation rates in low-rainfall grain cropping regions of Australia: A risk analysis," 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia, Australian Agricultural and Resource Economics Society 124339, Australian Agricultural and Resource Economics Society.
  7. Hennessy, David A., 2011. "Modeling Stochastic Crop Yield Expectations with a Limiting Beta Distribution," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 36(1), April.
  8. Bokusheva, Raushan & Breustedt, Gunnar & Heidelbach, Olaf, 2006. "Measurement and Comparison of Risk Reduction by Means of Farm Yield, Area Yield, and Weather Index Crop Insurance Schemes - The Case of Kazakhstani Wheat Farms," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia, International Association of Agricultural Economists 25523, International Association of Agricultural Economists.
  9. 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, European Association of Agricultural Economists 114528, European Association of Agricultural Economists.
  10. Hailu, Getu & Jeffrey, Scott R. & Goddard, Ellen W., 2004. "Impact Of Decision Makers Divergence In Risk Attitudes And Perceptions On Co-Operative Management In Canada," 2004 Annual meeting, August 1-4, Denver, CO, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20246, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  11. Gandorfer, Markus & Pannell, David & Meyer-Aurich, Andreas, 2011. "Analyzing the effects of risk and uncertainty on optimal tillage and nitrogen fertilizer intensity for field crops in Germany," Agricultural Systems, Elsevier, Elsevier, vol. 104(8), pages 615-622, October.
  12. Kalogeras, Nikos & Pennings, Joost M.E. & Garcia, Philip, 2006. "What Drives Strategic Behavior? A Framework to Explain and Predict SMEs' Transition to Sustainable Production Systems," 2006 Annual meeting, July 23-26, Long Beach, CA, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 21354, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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