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A Cost Approach to Economic Analysis Under State-Contingent Production Uncertainty

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  • Jean-Paul Chavas

Abstract

This article explores the economics of input decision under production uncertainty. The article develops a methodology to specify and estimate cost-minimizing input decisions under a state-contingent technology. The analysis is applied to time series data on U.S. agriculture. It finds strong empirical evidence that expected output alone does not provide an appropriate representation of production uncertainty. The results provide empirical support for an output-cubical technology. This indicates that an ex post analysis of stochastic technology appears appropriate. The analysis also provides evidence that the cost of facing production risk has declined in U.S. agriculture over the last few decades. Copyright 2008, Oxford University Press.

Suggested Citation

  • Jean-Paul Chavas, 2008. "A Cost Approach to Economic Analysis Under State-Contingent Production Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(2), pages 435-466.
  • Handle: RePEc:oup:ajagec:v:90:y:2008:i:2:p:435-466
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2007.01118.x
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