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Generalized Stochastic Dominance: An Empirical Examination

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  • McCarl, Bruce A.

Abstract

Use of generalized stochastic dominance (GSD) requires one to place lower and upper bounds on the risk aversion coefficient. This study showed that breakeven risk aversion coefficients found assuming the exponential utility function delineate the places where GSD preferences switch between prospects. However, between these break points, multiple, overlapping GSD intervals can be found. Consequently, when one does not have risk aversion coefficient information, discovery of breakeven coefficients instead of GSD use is recommended. The investigation also showed GSD results are insensitive to wealth and data scaling but are sensitive to rounding.

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  • McCarl, Bruce A., 1990. "Generalized Stochastic Dominance: An Empirical Examination," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 22(2), pages 49-55, December.
    • Handle: RePEc:cup:jagaec:v:22:y:1990:i:02:p:49-55_00
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    References listed on IDEAS

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    1. McCarl, Bruce A., 1988. "Preference Among Risky Prospects Under Constant Risk Aversion," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 20(2), pages 25-34, December.
    2. Richard M. Klemme, 1985. "A Stochastic Dominance Comparison of Reduced Tillage Systems in Corn and Soybean Production under Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(3), pages 550-556.
    3. Goh, Siew & Shih, Chao-Chyuan & Cochran, Mark J. & Raskin, Rob, 1989. "A Generalized Stochastic Dominance Program For The Ibm Pc," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 21(2), pages 1-8, December.
    4. Randall A. Kramer & Rulon D. Pope, 1981. "Participation in Farm Commodity Programs: A Stochastic Dominance Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 63(1), pages 119-128.
    5. John S. Hammond, III, 1974. "Simplifying the Choice between Uncertain Prospects Where Preference is Nonlinear," Management Science, INFORMS, vol. 20(7), pages 1047-1072, March.
    6. H. Dennis Tolley & Rulon D. Pope, 1988. "Testing for Stochastic Dominance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(3), pages 693-700.
    7. Goh, Siew & Shih, Chao-Chyuan & Cochran, Mark J. & Raskin, Rob, 1989. "A Generalized Stochastic Dominance Program for the IBM PC," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 21(2), pages 175-182, December.
    8. Abdulla B. Danok & Bruce A. McCarl & T. Kelley White, 1980. "Machinery Selection Modeling: Incorporation of Weather Variability," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(4), pages 700-708.
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    1. Maynard, Leigh J. & Harper, Jayson K. & Hoffman, Lynn D., 1997. "Impact Of Risk Preferences On Crop Rotation Choice," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 26(1), pages 1-9, April.
    2. Anissa Chaibi & Maria-Lenuta Ciupac-Ulici & Mircea-Cristian Gherman, 2014. "Do Recent Stochastic Tools Help to Better Understand Investors Preference and Asset Allocation?," Working Papers 2014-130, Department of Research, Ipag Business School.
    3. McCarl, Bruce A., 1988. "Preference Among Risky Prospects Under Constant Risk Aversion," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 20(2), pages 1-10, December.
    4. Brent A. Gloy & Timothy G. Baker, 2002. "The Importance of Financial Leverage and Risk Aversion in Risk-Management Strategy Selection," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 1130-1143.
    5. Scott Johnson, C. & Foster, Kenneth A., 1994. "Risk Preferences and Contracting In the U.S. Hog Industry," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 26(2), pages 393-405, December.
    6. John W. Ritchie & G. Yahya Abawi & Sunil C. Dutta & Trevor R. Harris & Michael Bange, 2004. "Risk management strategies using seasonal climate forecasting in irrigated cotton production: a tale of stochastic dominance," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(1), pages 65-93, March.
    7. J. Brian Hardaker & James W. Richardson & Gudbrand Lien & Keith D. Schumann, 2004. "Stochastic efficiency analysis with risk aversion bounds: a simplified approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), pages 253-270, June.
    8. Hardaker, J. Brian & Lien, Gudbrand D., 2003. "Stochastic Efficiency Analysis With Risk Aversion Bounds: A Simplified Approach," Working Papers 12954, University of New England, School of Economics.
    9. Scott, J. Fiona & Farquharson, Robert J., 2002. "Finding a win-win situation for salinity on the Liverpool Plains," 2002 Conference (46th), February 13-15, 2002, Canberra, Australia 125162, Australian Agricultural and Resource Economics Society.
    10. Dias, Weeratilake & Helmers, Glenn A. & Eghball, Bahman, 1999. "Economic And Environmental Risk Efficiency Analysis Of Land Application Of Cattle Feedlot Manure: Generalized Stochastic Dominance Analysis," 1999 Annual Meeting, July 11-14, 1999, Fargo, ND 35715, Western Agricultural Economics Association.
    11. Larson, James A. & Roberts, Roland K. & Tyler, Donald D. & Duck, Bob N. & Slinsky, Stephen P., 1998. "Nitrogen-Fixing Winter Cover Crops And Production Risk: A Case Study For No-Tillage Corn," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 30(1), pages 1-12, July.
    12. Giesler, G. Grant & Paxton, Kenneth W. & Millhollon, E.P., 1993. "A Gsd Estimation Of The Relative Worth Of Cover Crops In Cotton Production Systems," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(1), pages 1-10, July.
    13. Upadhyay, Bharat Mani & Smith, Elwin G. & Clayton, George & Harker, Neil, 2004. "Risk Efficiency Of Alternate Canola Management Decisions," Annual Meeting, 2004, June 20-23, Halifax, Nova Scotia 34193, Canadian Agricultural Economics Society.
    14. Mullen, John D., 2001. "An Economic Persective On Land Degradation Issues," Research Reports 27999, New South Wales Department of Primary Industries Research Economists.
    15. Ritchie, John W. & Abawi, G. Yahya & Dutta, Sunil C. & Harris, Trevor R. & Bange, Michael, 2004. "Risk management strategies using seasonal climate forecasting in irrigated cotton production: a tale of stochastic dominance," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(1), pages 1-29.
    16. Maxwell, Brett J. & Wilson, William W. & Dahl, Bruce L., 2004. "Marketing Mechanisms In Gm Grains And Oilseeds," Agribusiness & Applied Economics Report 23639, North Dakota State University, Department of Agribusiness and Applied Economics.
    17. Rodriguez, Hector German & Popp, Jennie & Gbur, Edward & Chaubey, Indrajeet, 2011. "Environmental and economic impacts of reducing total phosphorous runoff in an agricultural watershed," Agricultural Systems, Elsevier, vol. 104(8), pages 623-633, October.

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