Measures Of Risk Aversion And Risk Premiums From Land Allocation Model: An Empirical Analysis Based On Farm Level Panel Data

The knowledge of measures of risk in the prospect of agricultural production and farmers’ attitude towards risk are very crucial in making policy decisions on farm output stabilization. There are not many empirical studies which evaluate the risk measures in the context of Indian agriculture, using explicit risk modeling. Many available studies measure risk through ad hoc descriptive measures. Even the few studies which attempt estimating risk attitude by explicit modeling, use data pertaining to the 1980s, and the measures are not updated to assess the impact of the programs introduced after the 1980s. In this background, this study calculates risk measures, using farm level data of the 1990s and compares the estimates with those of the 1980s. The results show reduction in risk attitude and also risk premiums, confirming the positive impact of the risk reducing schemes such as Crop Insurance introduced in the late 1980s, and enhancement of assured irrigation and other infrastructure. The relative risk aversion parameter has come down from 2.8 to 1.2 and risk premium has come down from 5% of the mean output to about 0.5% from the 1980s to the 1990s.