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Tests For The Role Of Risk Aversion On Input Use

  • Roosen, Jutta
  • Hennessy, David A.

Agricultural inputs can create negative externalities. For risk averting agents, risk will alter production decisions while the existence of institutions to insure against adverse states of nature will likely restore decisions toward levels under risk neutrality. In this paper, conditions are identified on a stochastic technology to test that risk averters choose smaller input levels than risk neutral agents, and that an increase in risk aversion reduces input use. A robust statistical method (Klecan, McFadden, and McFadden) to test for dominance is adapted to stochastic production relations. It is found that the first hypothesis is likely true for nitrogen application on Iowa corn. Weaker evidence is found in favor of the second hypothesis.

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File URL: http://purl.umn.edu/20498
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2001 Annual meeting, August 5-8, Chicago, IL with number 20498.

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Date of creation: 2001
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Handle: RePEc:ags:aaea01:20498
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  1. Kaur, Amarjot & Prakasa Rao, B.L.S. & Singh, Harshinder, 1994. "Testing for Second-Order Stochastic Dominance of Two Distributions," Econometric Theory, Cambridge University Press, vol. 10(05), pages 849-866, December.
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