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How laboratory experiments could help disentangle the influences of production risk and risk preferences on input decisions

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  • Bougherara, Douadia
  • Nauges, Céline

Abstract

The purpose of this article is to further our understanding of input choices (such as pesticides or fertilisers) when producers face production risk that depends on a random shock and on the quantity of input used. Using laboratory experiments, we study the role of risk preferences and public policies (here, a lump-sum subsidy and insurance) on producers’ input decisions in two situations: i) a risk-decreasing input; and ii) a risk-increasing input. Our findings raise questions on the sensitivity of optimal input choices to risk preferences and the relevance of the expected utility model to describe farmers’ decisions.

Suggested Citation

  • Bougherara, Douadia & Nauges, Céline, 2018. "How laboratory experiments could help disentangle the influences of production risk and risk preferences on input decisions," TSE Working Papers 18-903, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:32566
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    References listed on IDEAS

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    Keywords

    laboratory experiment; input choice; production risk; risk preferences; subsidy; insurance;

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