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Tests For The Role Of Risk Aversion On Input Use

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  • Roosen, Jutta
  • Hennessy, David A.

Abstract

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.

Suggested Citation

  • Roosen, Jutta & Hennessy, David A., 2001. "Tests For The Role Of Risk Aversion On Input Use," 2001 Annual meeting, August 5-8, Chicago, IL 20498, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea01:20498
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    1. Ayinde, O.E., 2016. "Risk analysis in innovation system: a case - study of production of Vitamin A cassava variety among farmers in Nigeria," 2016 AAAE Fifth International Conference, September 23-26, 2016, Addis Ababa, Ethiopia 249326, African Association of Agricultural Economists (AAAE).
    2. Predrag Rajsic & Alfons Weersink & Markus Gandorfer, 2009. "Risk and Nitrogen Application Levels," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(2), pages 223-239, June.
    3. Karina Schoengold & David L. Sunding, 2014. "The impact of water price uncertainty on the adoption of precision irrigation systems," Agricultural Economics, International Association of Agricultural Economists, vol. 45(6), pages 729-743, November.
    4. Asci, Serhat & Borisova, Tatiana & VanSickle, John J., 2015. "Role of economics in developing fertilizer best management practices," Agricultural Water Management, Elsevier, vol. 152(C), pages 251-261.
    5. Williamson, James M., 2010. "Does Information Matter? Assessing the Role of Information and Prices in the Nitrogen Fertilizer Management Decision," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 60892, Agricultural and Applied Economics Association.
    6. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Are farmers in low-rainfall cropping regions under-fertilizing? An Australian case-study," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 124976, International Association of Agricultural Economists.
    7. Monjardino, M. & McBeath, T. & Ouzman, J. & Llewellyn, R. & Jones, B., 2015. "Farmer risk-aversion limits closure of yield and profit gaps: A study of nitrogen management in the southern Australian wheatbelt," Agricultural Systems, Elsevier, vol. 137(C), pages 108-118.
    8. Bokusheva, Raushan & Breustedt, Gunnar & Heidelbach, Olaf, 2006. "Measurement and Comparison of Risk Reduction by Means of Farm Yield, Area Yield, and Weather Index Crop Insurance Schemes - The Case of Kazakhstani Wheat Farms," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25523, International Association of Agricultural Economists.
    9. Susan Athey, 2002. "Monotone Comparative Statics under Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 187-223.
    10. Kalogeras, Nikos & Pennings, Joost M.E. & Garcia, Philip, 2006. "What Drives Strategic Behavior? A Framework to Explain and Predict SMEs' Transition to Sustainable Production Systems," 2006 Annual meeting, July 23-26, Long Beach, CA 21354, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    11. Rosas, Juan Francisco, 2012. "Essays on the environmental effects of agricultural production," ISU General Staff Papers 201201010800003744, Iowa State University, Department of Economics.
    12. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Revisiting N fertilisation rates in low-rainfall grain cropping regions of Australia: A risk analysis," 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia 124339, Australian Agricultural and Resource Economics Society.
    13. Howard, Gregory E. & Roe, Brian E., 2011. "Comparing the Risk Attitudes of U.S. and German Farmers," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114528, European Association of Agricultural Economists.
    14. Gandorfer, Markus & Pannell, David & Meyer-Aurich, Andreas, 2011. "Analyzing the effects of risk and uncertainty on optimal tillage and nitrogen fertilizer intensity for field crops in Germany," Agricultural Systems, Elsevier, vol. 104(8), pages 615-622, October.
    15. Khor, Ling & Ufer, Susanne & Nielsen, Thea & Zeller, Manfred, 2015. "The Influence of Individual Risk Behavior on Fertilizer Use Decision in Vietnam," 2015 Conference, August 9-14, 2015, Milan, Italy 211844, International Association of Agricultural Economists.
    16. Meyer-Aurich, Andreas & Gandorfer, Markus & Rajsic, Predrag, 2013. "Analyzing higher moments of nitrogen response for risk efficient fertilizer application in wheat and corn production," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150220, Agricultural and Applied Economics Association.
    17. Hennessy, David A., 2011. "Modeling Stochastic Crop Yield Expectations with a Limiting Beta Distribution," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(1), April.
    18. Liu, Yucan & Shumway, C. Richard, 2005. "Indirect Utility Maximization under Risk: A Heterogeneous Panel Application," 2005 Annual Meeting, July 6-8, 2005, San Francisco, California 36307, Western Agricultural Economics Association.
    19. Hailu, Getu & Jeffrey, Scott R. & Goddard, Ellen W., 2004. "Impact Of Decision Makers Divergence In Risk Attitudes And Perceptions On Co-Operative Management In Canada," 2004 Annual meeting, August 1-4, Denver, CO 20246, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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