Risk attitude, perception, management experience, and productivity: Evidence from a semiparametric approach and a less developed economy

Though high-value crops like fruits and vegetables are considered lucrative enterprises in developing countries, farmers face various risks related to the inputs and outputs of these production systems. Relatively higher initial investments, intensive care requirements in the face of farm labor shortage, and climatic and production risks challenge vegetable production. This study estimates the production function of commercial vegetable growers in Nepal, particularly emphasizing the effects of risk-related factors. The study uses a semiparametric smooth coefficient production function generalized by integrating the risk-specific variables, allowing the estimation with minimal functional form assumptions. Findings reveal that growers’ attitudes toward risk, perception of risk, and risk management skills affect vegetable production directly and indirectly through input-related decisions and selection. Vegetable growers who were relatively more risk-averse experienced lower productivity than less risk-averse or neutral growers. At the same time, growers who worried about production quality, pests, and climatic risks managed higher productivity than their counterparts. Finally, the study shows heterogeneous effects of risk-related variables across production quantiles; most commercial growers operate their farms around constant or slightly decreasing returns to scale.