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Production Risk and Optimal Input Decisions

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  • Bharat Ramaswami

Abstract

The paper examines the impact of production risk on a producer's optimal input decisions. Whether producers use more or fewer inputs in a yield-risky environment depends on the sign of the marginal risk premium, which is determined by risk preferences and technology. I present the weakest condition on technology that is sufficient to sign the marginal risk premium for all risk-averse preferences. If this condition fails to hold, the marginal risk premium is not of the same sign for all risk averters. Results are used to explore the properties of an estimated technology.

Suggested Citation

  • Bharat Ramaswami, 1992. "Production Risk and Optimal Input Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(4), pages 860-869.
    • Handle: RePEc:oup:ajagec:v:74:y:1992:i:4:p:860-869.
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    File URL: http://hdl.handle.net/10.2307/1243183
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