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Joint Estimation of Risk Preferences and Technology: Flexible Utility or Futility?

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  • Sergio H. Lence

Abstract

A thought experiment is designed to investigate whether the structure of risk aversion (i.e., the changes in absolute or relative risk aversion associated with changes in wealth) can be estimated with reasonable precision from agricultural production data. Findings strongly suggest that typical production data are unlikely to allow identification of the structure of risk aversion. A flexible-utility parameterization is found to slightly worsen technology parameter estimates. Results also indicate that even under a restricted-utility specification, utility parameter estimates are biased. Further, their quality is much worse when shocks are not large or samples are small. Copyright 2007, Oxford University Press.

Suggested Citation

  • Sergio H. Lence, 2007. "Joint Estimation of Risk Preferences and Technology: Flexible Utility or Futility?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 581-598.
    • Handle: RePEc:oup:ajagec:v:91:y:2007:i:3:p:581-598
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2009.01274.x
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    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General

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