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Risk Preferences, Production Risk and Firm Heterogeneity

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  • Subal C. Kumbhakar
  • Ragnar Tveterås

Abstract

A new technique is proposed for deriving the risk preference function under production risk and expected utility of profit maximization. The derivation depends on neither a specific parametric form of the utility function nor any distribution of the error term representing production risk. The proposed risk preference function is flexible enough to test different types of risk behavior and symmetry of the output distribution. Furthermore, our production risk specification allows for inputs with positive and negative marginal risk. The econometric model accommodates production risk, risk preferences and firm heterogeneity "simultaneously". Norwegian salmon farming data are used as an application. Copyright The editors of the "Scandinavian Journal of Economics", 2003 .

Suggested Citation

  • Subal C. Kumbhakar & Ragnar Tveterås, 2003. "Risk Preferences, Production Risk and Firm Heterogeneity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(2), pages 275-293, June.
  • Handle: RePEc:bla:scandj:v:105:y:2003:i:2:p:275-293
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    Citations

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    Cited by:

    1. Efthymios G. Tsionas, 2014. "On modeling banking risk," Working Papers 183, Bank of Greece.
    2. Ayenew, Habtamu Yesigat & Sauer, Johannes & Abate-Kassa, Getachew, 2015. "Expossure To Risk And Risk Management In Smallholder Agriculture," 55th Annual Conference, Giessen, Germany, September 23-25, 2015 209211, German Association of Agricultural Economists (GEWISOLA).
    3. Xavier Vollenweider & Salvatore Di Falco & Cathal O�Donoghue, 2011. "Risk preferences and voluntary agrienvironmental schemes: does risk aversion explain the uptake of the Rural Environment Protection Scheme?," GRI Working Papers 48, Grantham Research Institute on Climate Change and the Environment.
    4. Krishna, Vijesh V. & Zilberman, David & Qaim, Matin, 2009. "Transgenic technology adoption and on-farm varietal diversity," 2009 Conference, August 16-22, 2009, Beijing, China 51750, International Association of Agricultural Economists.
    5. Agabriel, Jacques & Lherm, Michel & Mosnier, Claire & Reynaud, Arnaud & Thomas, Alban, 2009. "Estimating a Production Function under Production and Output Price Risks: An Application to Beef Cattle in France," TSE Working Papers 09-046, Toulouse School of Economics (TSE).
    6. Wu, Feng & Guan, Zhengfei, 2014. "Efficient Estimation of Risk Attitude with Seminonparametric Risk Modeling," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170625, Agricultural and Applied Economics Association.
    7. Ragnar Tveteras & Ola Flaten & Gudbrand Lien, 2011. "Production risk in multi-output industries: estimates from Norwegian dairy farms," Applied Economics, Taylor & Francis Journals, vol. 43(28), pages 4403-4414.
    8. Kristin Roll, 2013. "Measuring performance, development and growth when restricting flexibility," Journal of Productivity Analysis, Springer, vol. 39(1), pages 15-25, February.
    9. Khayyat, Nabaz T. & Heshmati, Almas, 2014. "Production Risk, Energy Use Efficiency and Productivity of Korean Industries," Working Paper Series in Economics and Institutions of Innovation 359, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    10. Moser, Stefan & Mußhoff, Oliver, 2015. "Comparing the use of risk-influencing production inputs and experimentally measured risk attitude: Do decisions of Indonesian small-scale rubber farmers match?," EFForTS Discussion Paper Series 14, University of Goettingen, Collaborative Research Centre 990 "EFForTS, Ecological and Socioeconomic Functions of Tropical Lowland Rainforest Transformation Systems (Sumatra, Indonesia)".
    11. Phoebe Koundouri & Marita Laukkanen, "undated". "Stochastic Production in a Regulated Fishery:The Importance of Risk Considerations," DEOS Working Papers 0403, Athens University of Economics and Business.
    12. Antti Saastamoinen, 2015. "Heteroscedasticity Or Production Risk? A Synthetic View," Journal of Economic Surveys, Wiley Blackwell, vol. 29(3), pages 459-478, July.
    13. Tsionas, Mike G., 2017. "Microfoundations for stochastic frontiers," European Journal of Operational Research, Elsevier, vol. 258(3), pages 1165-1170.
    14. repec:spr:annopr:v:237:y:2016:i:1:d:10.1007_s10479-014-1702-7 is not listed on IDEAS
    15. Krishna, Vijesh V. & Zilberman, David & Qaim, Matin, 2009. "GM Technology Adoption, Production Risk and On-farm Varietal Diversity," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49173, Agricultural and Applied Economics Association.
    16. Xavier Vollenweider, 2014. "A simple framework for the estimation of climate exposure," GRI Working Papers 158, Grantham Research Institute on Climate Change and the Environment.
    17. 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 36307, Western Agricultural Economics Association.

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