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Risk preference and productivity measurement under output price uncertainty

Author

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  • Subal C. Kumbhakar

    (Department of Economics, State University of New York, Binghamton, NY 13902, USA)

Abstract

This paper deals with joint estimation of production and risk preference functions in the presence of output price uncertainty. We use quadratic production and utility functions under the assumption that producers maximize expected utility of anticipated profit. A panel data on Norwegian salmon farms is used for this purpose. Empirical results show that all salmon farmers are risk averse. Relative risk premium (the implicit cost of private risk bearing) is found to be about 15% of mean profit. We also find rapid technological change taking place (3.75% per year) in the salmon farming industry.

Suggested Citation

  • Subal C. Kumbhakar, 2002. "Risk preference and productivity measurement under output price uncertainty," Empirical Economics, Springer, vol. 27(3), pages 461-472.
    • Handle: RePEc:spr:empeco:v:27:y:2002:i:3:p:461-472
    Note: received: February 2000/Final version received: February 2001
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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. Moser, Stefan & Mußhoff, Oliver, 2017. "Comparing the Use of Risk influencing Production Inputs and Experimentally Measured Risk Attitude: Do the Decisions of Indonesian Small scale Rubber Farmers Match?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 66(2), June.
    3. Liu, Weihua & Wang, Yijia, 2015. "Quality control game model in logistics service supply chain based on different combinations of risk attitude," International Journal of Production Economics, Elsevier, vol. 161(C), pages 181-191.
    4. Alghalith, Moawia, 2008. "Recent applications of theory of the firm under uncertainty," European Journal of Operational Research, Elsevier, vol. 186(2), pages 443-450, April.
    5. Jean-Philippe Boussemart & Walter Briec & Christophe Tavera, 2011. "More evidence on technological catching-up in the manufacturing sector," Applied Economics, Taylor & Francis Journals, vol. 43(18), pages 2321-2330.
    6. Jean-Philippe Boussemart & David Crainich & Hervé Leleu, 2012. "A decomposition of profit inefficiency into price expectation error, preferences towards risk and technical inefficiency," Working Papers 2012-ECO-04, IESEG School of Management.
    7. Koundouri, Phoebe & Laukkanen, Marita, 2004. "Stochastic Production in a Regulated Fishery:The Importance of Risk Considerations," MPRA Paper 41912, University Library of Munich, Germany.
    8. Hurley, Terrance M., 2010. "A review of agricultural production risk in the developing world," Working Papers 188476, HarvestChoice.
    9. 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.
    10. Mian Numan Raheem & M. Adrees, 2021. "The Effect of Risk and Uncertainty Factors on Managerial Decision Making," Journal of Education and Vocational Research, AMH International, vol. 12(1), pages 30-37.
    11. Boussemart, Jean-Philippe & Crainich, David & Leleu, Hervé, 2015. "A decomposition of profit loss under output price uncertainty," European Journal of Operational Research, Elsevier, vol. 243(3), pages 1016-1027.
    12. Khayyat, Nabaz T. & Heshmati, Almas, 2014. "Production Risk, Energy Use Efficiency and Productivity of Korean Industries," IZA Discussion Papers 8081, Institute of Labor Economics (IZA).
    13. Elie Appelbaum & Alan D. Woodland, 2010. "The Effects of Foreign Price Uncertainty on Australian Production and Trade," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 162-177, June.
    14. Tsionas, Mike G., 2016. "Parameters measuring bank risk and their estimation," European Journal of Operational Research, Elsevier, vol. 250(1), pages 291-304.
    15. Elie Appelbaum & Aman Ullah, 1997. "Estimation Of Moments And Production Decisions Under Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 631-637, November.
    16. Blancard, Stephane & Boussemart, Jean-Philippe & Crainich, D. & Leleu, Herve, 2008. "How can allocative inefficiency reveal risk preference? An empirical investigation on French wheat farms," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44208, European Association of Agricultural Economists.
    17. Ndoye Niane, Aifa Fatimata & Burger, Kees, 2012. "Gender and Experimental Measurement of Producers Risk Attitude Towards Output Market Price and its Effects on Economic Performance," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126928, International Association of Agricultural Economists.
    18. Ceddia, M.G. & Heikkil, J. & Peltola, J., 2009. "Managing invasive alien species with professional and hobby farmers: Insights from ecological-economic modelling," Ecological Economics, Elsevier, vol. 68(5), pages 1366-1374, March.
    19. Subal Kumbhakar & Efthymios Tsionas, 2010. "Estimation of production risk and risk preference function: a nonparametric approach," Annals of Operations Research, Springer, vol. 176(1), pages 369-378, April.
    20. Tomasz Gerard Czekaj & Arne Henningsen, 2013. "Panel Data Nonparametric Estimation of Production Risk and Risk Preferences: An Application to Polish Dairy Farms," IFRO Working Paper 2013/6, University of Copenhagen, Department of Food and Resource Economics.

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