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Production economics in the presence of risk

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  • Shankar, Sriram

Abstract

This paper provides an overview of the literature on production under the influence of risk. Various specifications of stochastic production function such as models with additive and multiplicative uncertainty, Just and Pope model, output-cubical, stateallocable and state-general models are discussed. Further, criteria determining optimal producer behaviour are derived for deterministic production technology and for various kinds of state-contingent technologies such as output-cubical, state-specific, stateallocable and state-general technologies. Finally, a brief discussion is presented about the drawbacks of each of these specifications of technology.

Suggested Citation

  • Shankar, Sriram, 2012. "Production economics in the presence of risk," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 56(4), pages 1-24, December.
    • Handle: RePEc:ags:aareaj:229825
    DOI: 10.22004/ag.econ.229825
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    2. Svend Rasmussen, 2003. "Criteria for optimal production under uncertainty. The state‐contingent approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(4), pages 447-476, December.
    3. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
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    5. Jaramillo, Paul E. & Useche, Pilar & Barham, Bradford L. & Foltz, Jeremy D., 2010. "The State Contingent Approach to Farmers' Valuation and Adoption of New Biotech Crops: Nitrogen-Fertilizer Saving and Drought Tolerance Traits," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61860, Agricultural and Applied Economics Association.
    6. Just, Richard E., 2003. "Risk research in agricultural economics: opportunities and challenges for the next twenty-five years," Agricultural Systems, Elsevier, vol. 75(2-3), pages 123-159.
    7. Yaari, Menahem E., 1969. "Some remarks on measures of risk aversion and on their uses," Journal of Economic Theory, Elsevier, vol. 1(3), pages 315-329, October.
    8. Robert G. Chambers & John Quiggin, 2002. "The State-Contingent Properties of Stochastic Production Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 513-526.
    9. Rasmussen, Svend, 2004. "Optimizing Production under Uncertainty: Generalisation of the State-Contingent Approach and Comparison of Methods for Empirical Application," Unit of Economics Working Papers 24184, Royal Veterinary and Agricultural University, Food and Resource Economic Institute.
    10. Subal C. Kumbhakar, 2002. "Specification and Estimation of Production Risk, Risk Preferences and Technical Efficiency," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 8-22.
    11. Robert G. Chambers & John Quiggin, 1998. "Cost Functions and Duality for Stochastic Technologies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 288-295.
    12. H. Alan Love & Steven T. Buccola, 1999. "Joint Risk Preference-Technology Estimation with a Primal System: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 245-247.
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    Cited by:

    1. Tomasz Gerard Czekaj & Arne Henningsen, 2013. "Panel Data Nonparametric Estimation of Production Risk and Risk Preferences: An Application to Polish Dairy Farms," IFRO Working Paper 2013/6, University of Copenhagen, Department of Food and Resource Economics.
    2. Raushan Bokusheva & Lajos Baráth, 2024. "State‐contingent production technology formulation: Identifying states of nature using reduced‐form econometric models of crop yield," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(2), pages 805-827, March.

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    Keywords

    Production Economics; Risk and Uncertainty;

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