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The Effect Of Fertiliser On Risk: A Heteroscedastic Production Function With Measurable Stochastic Inputs

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  • Mark W. Rosegrant
  • James A. Roumasset

Abstract

The sources of production risk are many and diverse in nature. Estimating risk as a black box, without explicit recognition of its sources, can lead to inferior estimates of optimal inputs under risk aversion. In this paper, a method is presented for estimating production functions with measurable stochastic inputs and for generating the parameters of the probability distributions of yield for various environments and input levels. Based on this method, it appears that moderate risk aversion can account for a 6.7 per cent to 16.7 per cent reduction in nitrogen use (relative to the risk-neutral solution) for selected rice producing areas of the Philippines. Estimating optimal inputs without environment specific information about the sources of risk leads to large errors. This underscores the value of collecting information about the sources of risk and of exercising caution when such information is not available.
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Suggested Citation

  • Mark W. Rosegrant & James A. Roumasset, 1985. "The Effect Of Fertiliser On Risk: A Heteroscedastic Production Function With Measurable Stochastic Inputs," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 29(2), pages 107-121, August.
  • Handle: RePEc:bla:ajarec:v:29:y:1985:i:2:p:107-121
    DOI: j.1467-8489.1985.tb00651.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-8489.1985.tb00651.x
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    References listed on IDEAS

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    1. Harvey, A C, 1976. "Estimating Regression Models with Multiplicative Heteroscedasticity," Econometrica, Econometric Society, vol. 44(3), pages 461-465, May.
    2. H. M. G. Herath & J. Brian Hardaker & Jock R. Anderson, 1982. "Choice of Varieties by Sri Lanka Rice Farmers: Comparing Alternative Decision Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(1), pages 87-93.
    3. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
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    5. 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.
    6. Herdt, R W & Mandac, A M, 1981. "Modern Technology and Economic Efficiency of Philippine Rice Farmers," Economic Development and Cultural Change, University of Chicago Press, vol. 29(2), pages 375-399, January.
    7. Antle, John M, 1983. "Testing the Stochastic Structure of Production: A Flexible Moment-based Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(3), pages 192-201, July.
    8. Amemiya, Takeshi, 1977. "A note on a heteroscedastic model," Journal of Econometrics, Elsevier, vol. 6(3), pages 365-370, November.
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    Cited by:

    1. Griffiths, William E. & Anderson, Jock R. & Hamal, K.B., 1987. "Subjective Distributions As Econometric Response Data," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 31(02), August.
    2. Briones, Roehlano M., 2016. "Inadequate N Application of Rice Farmers in the Philippines: Problems, Causes, Solutions," Discussion Papers DP 2016-01, Philippine Institute for Development Studies.
    3. Hurley, Terrance M., 2010. "A review of agricultural production risk in the developing world," Working Papers 188476, HarvestChoice.
    4. Shukri, Ahmed, 2003. "Diversification across crops and land in small holder agriculture in Ethiopia: the case of shewa administrative region," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 12(1).
    5. Lichtenberg, Erik, 2002. "Agriculture and the environment," Handbook of Agricultural Economics,in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 2, chapter 23, pages 1249-1313 Elsevier.
    6. 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. 150220, Agricultural and Applied Economics Association.
    7. Abedullah & Mubaraik Ali, 2006. "Quantifying the Extent and Nature of Risk in Alternative Cropping Patterns in Claveria, Philippines," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(2), pages 261-280.
    8. Briones, Roehlano M., 2016. "Inadequate N Application of Rice Farmers in the Philippines: Problems, Causes, Solutions," Research Paper Series DP 2016-01, Philippine Institute for Development Studies.
    9. repec:eee:wdevel:v:105:y:2018:i:c:p:299-309 is not listed on IDEAS
    10. Finger, Robert, 2012. "Nitrogen use and the effects of nitrogen taxation under consideration of production and price risks," Agricultural Systems, Elsevier, vol. 107(C), pages 13-20.
    11. Abedullah & Sushil Pandey, 2007. "The Value of Rainfall Forecasts in the Rainfed Rice Areas of the Philippines," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 12(2), pages 69-81, Jul-Dec.
    12. Abedullah & Pandey, Sushil, 2004. "Risk and Fertilizer Use in the Rainfed Rice Ecosystem of Tarlac, Philippines," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 36(01), April.
    13. Lehmann, Niklaus & Finger, Robert, 2012. "Optimizing whole-farm management considering price and climate risks," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122533, European Association of Agricultural Economists.
    14. Mukasa Adamon N., 2016. "Working Paper 233 - Technology Adoption and Risk Exposure among Smallholder Farmers: Panel Data Evidence from Tanzania and Uganda," Working Paper Series 2328, African Development Bank.
    15. Gupta, Shreekant & Sen, Partha & Verma, Saumya, 2016. "Impact of Climate Change on Foodgrain Yields in India," CEI Working Paper Series 2015-9, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    16. Metcalfe, Todd & Bosch, Darrell J. & Pease, James W. & Alley, Mark M. & Phillips, Steve B., 2007. "Yield Reserve Program Costs in the Virginia Coastal Plain," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 36(2), October.
    17. Herdt, Robert W., 1986. "Technological Potential for Increasing Crop Productivity in Developing Countries," 1986: Trade and Development Meeting, December 1986, CIMMYT, Mexico City, Mexico 50654, International Agricultural Trade Research Consortium.
    18. Finger, Robert, 2011. "Reductions of Agricultural Nitrogen Use Under Consideration of Production and Price Risks," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114356, European Association of Agricultural Economists.

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