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Optimal Risk Management, Risk Aversion, And Production Function Properties

Author

Listed:
  • Loehman, Edna T.
  • Nelson, Carl H.

Abstract

For production risk with identified physical causes, the nature of risk, production characteristics, risk preference, and prices determine optimal input use. Here, a two-way classification for pairs of inputs - each input as being risk increasing or decreasing and pairs as being risk substitutes or complements - provides sufficient conditions to determine how risk aversion should affect input use. Unlike the Sandmo price risk averse firm may produce more expected output and use more inputs than a risk neutral firm. Sufficient conditions to determine types for pairs of inputs are also related to properties of the production function.

Suggested Citation

  • Loehman, Edna T. & Nelson, Carl H., 1992. "Optimal Risk Management, Risk Aversion, And Production Function Properties," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(2), pages 1-13, December.
    • Handle: RePEc:ags:jlaare:30950
    DOI: 10.22004/ag.econ.30950
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    2. Willis, David B. & Whittlesey, Norman K., 1998. "The Effect Of Stochastic Irrigation Demands And Surface Water Supplies On On-Farm Water Management," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(01), pages 1-19, July.
    3. Karagiannis, Giannis, 1999. "Proportional Profit Taxes And Resource Management Under Production Uncertainty," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(2), pages 1-11, December.
    4. Soule, Meredith J. & Nimon, R. Wesley & Mullarkey, Daniel J., 2001. "Risk Management And The Environment: Impacts At The Intensive And Extensive Margins," 2001 Annual meeting, August 5-8, Chicago, IL 20670, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Yano, Yuki & Blandford, David, 2008. "Agri-Environmental Policy and Moral Hazard under Output Price and Production Uncertainty," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44323, European Association of Agricultural Economists.
    6. Kusadokoro, Motoi, 2010. "Risk Aversion and Optimal Input Utilization under State Contingent Technology," Japanese Journal of Agricultural Economics (formerly Japanese Journal of Rural Economics), Agricultural Economics Society of Japan (AESJ), vol. 12, pages 1-13.
    7. Gatti, Nicolas & Cecil, Michael & Baylis, Kathy & Estes, Lyndon & Blekking, Jordan & Heckelei, Thomas & Vergopolan, Noemi & Evans, Tom, 2023. "Is closing the agricultural yield gap a “risky” endeavor?," Agricultural Systems, Elsevier, vol. 208(C).
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    9. Tang, Lin & Luo, Xiaofeng, 2021. "Can agricultural insurance encourage farmers to apply biological pesticides? Evidence from rural China," Food Policy, Elsevier, vol. 105(C).
    10. Bruce A. Babcock & Jason F. Shogren, 1995. "The cost of agricultural production risk," Agricultural Economics, International Association of Agricultural Economists, vol. 12(2), pages 141-150, April.
    11. Arkadiy V. Sakhartov, 2017. "Economies of Scope, Resource Relatedness, and the Dynamics of Corporate Diversification," Strategic Management Journal, Wiley Blackwell, vol. 38(11), pages 2168-2188, November.
    12. Nimon, R. Wesley & Mishra, Ashok K., 2001. "Revenue Insurance and Chemical Input Use Rates," 2001 Annual meeting, August 5-8, Chicago, IL 20669, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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