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Cost of Agricultural Production Risk (The)

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  • Babcock, Bruce A.
  • Shogren, Jason F.

Abstract

We examine the relative influence of preferences and technology on producers' ex ante willingness to pay for a reduction in production risk. A risk averse producer pays both an Arrow-Pratt risk premium to stabilize income and a ﾑproduction premiumﾒ to stabilize yield. Using soil-nitrate risks as our motivating example, we demonstrate that the production premium accounts for 40-85% of producers' willingess to pay for risk reduction. These results demonstrate the relative importance of technology over risk preferences when estimating the costs of agricultural production risk.

Suggested Citation

  • Babcock, Bruce A. & Shogren, Jason F., 1995. "Cost of Agricultural Production Risk (The)," Staff General Research Papers Archive 5014, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:5014
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    Cited by:

    1. Mitchell, Paul D., 2003. "Value of imperfect input information in agricultural production," Agricultural Systems, Elsevier, vol. 75(2-3), pages 277-294.
    2. Isik, Murat & Khanna, Madhu, 2002. "Variable-Rate Nitrogen Application Under Uncertainty: Implications For Profitability And Nitrogen Use," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(1), pages 1-16, July.
    3. 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.
    4. Archer, David W. & Shogren, Jason F., 1996. "Endogenous risk in weed control management," Agricultural Economics, Blackwell, vol. 14(2), pages 103-122, July.
    5. Murat Isik & Madhu Khanna, 2003. "Stochastic Technology, Risk Preferences, and Adoption of Site-Specific Technologies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(2), pages 305-317.
    6. Wenfeng Zhou & Yan Yang & Jia He & Dingde Xu, 2023. "Does Labor Aging Inhibit Farmers’ Straw-Returning Behavior? Evidence from Rural Rice Farmers in Southwest China," Land, MDPI, vol. 12(9), pages 1-15, September.
    7. Lichtenberg, Erik, 2002. "Agriculture and the environment," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 2, chapter 23, pages 1249-1313, Elsevier.
    8. Mitchell, Paul David, 1999. "The theory and practice of green insurance: insurance to encourage the adoption of corn rootworm IPM," ISU General Staff Papers 1999010108000013154, Iowa State University, Department of Economics.

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