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How Much Can We Learn About Producers' Utility Functions from Their Production Data?

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  • Lence, Sergio H.

Abstract

A thought experiment is designed to investigate whether the structure of risk aversion (i.e., the changes in absolute or relative risk aversion associated with changes in wealth) can be estimated with reasonable precision from agricultural production data. Findings strongly suggest that typical production data are unlikely to allow identification of the structure of risk aversion. A flexible utility parameterization is found to slightly worsen technology parameter estimates. Results also indicate that even under a restricted utility specification, utility parameter estimates are biased. Further, their quality is much worse when shocks are not large or samples are small.

Suggested Citation

  • Lence, Sergio H., 2008. "How Much Can We Learn About Producers' Utility Functions from Their Production Data?," Proceedings:2008 Agricultural and Rural Finance Markets in Transition, September 25-26, 2008, Kansas City, Missouri 119534, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  • Handle: RePEc:ags:nc1008:119534
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    References listed on IDEAS

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    More about this item

    Keywords

    expected utility; risk preferences; production analysis; risk attitudes; Production Economics; Risk and Uncertainty; C13; D24; D81; Q12;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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