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Economic efficiency adjusted for risk preferences

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  • Elizabeth A. Yeager
  • Michael R. Langemeier

Abstract

This study investigates the impact of risk preferences on cost and revenue efficiency for a sample of farms. Risk preference scores were used to measure risk aversion. Cost and revenue efficiency were estimated using traditional input and output measures, and then re-estimated including each farm’s risk preference score. Comparisons were made between farms with and without a change in efficiency when each farm’s risk preference was included in the analysis. As expected, risk preference plays an important role in explaining farm inefficiency. Failure to account for risk preferences overstates inefficiency, particularly for slightly risk averse and risk neutral farms.

Suggested Citation

  • Elizabeth A. Yeager & Michael R. Langemeier, 2017. "Economic efficiency adjusted for risk preferences," Applied Economics, Taylor & Francis Journals, vol. 49(16), pages 1627-1636, April.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:16:p:1627-1636
    DOI: 10.1080/00036846.2016.1223819
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    Cited by:

    1. Robbie Maris & Zack Dorner, 2021. "Cost Efficiency Analysis using Operating Profit Margin for the New Zealand Dairy Industry," Working Papers in Economics 21/04, University of Waikato.
    2. Eric Ofori & Elizabeth A. Yeager & Brian C. Briggeman, 2025. "Estimating potential gains from agricultural cooperative mergers," Agribusiness, John Wiley & Sons, Ltd., vol. 41(2), pages 505-520, April.
    3. Ofori, Eric Makafui & Yeager, Elizabeth & Briggeman, Brian, "undated". "Agricultural Cooperative mergers and efficiency gains: An ex-ante analysis," 2020 Annual Meeting, February 1-4, 2020, Louisville, Kentucky 302323, Southern Agricultural Economics Association.

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