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Joint Estimation of Risk Preferences and Technology: Flexible Utility or Futility?

  • Lence, Sergio H.

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.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p1742-2009-10-05.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 13028.

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Date of creation: 05 Aug 2009
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Publication status: Published in American Journal of Agricultural Economics, August 2009, vol. 91 no. 3, pp. 581-598
Handle: RePEc:isu:genres:13028
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Web page: http://www.econ.iastate.edu
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