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Producer Surplus and Risk

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  • Rulon D. Pope
  • Jean-Paul Chavas

Abstract

This paper examines the welfare economics of producer behavior under risk aversion. Hicksian, Marshallian, and money equivalent measures are explored. It is found that under decreasing absolute risk aversion, compensating variation is less than the ordinary Marshallian surplus, which is less than the money equivalent measure. Under constant absolute risk aversion all measures coincide. Finally, bounds on compensating and equivalent variations using ordinary producer surplus in a manner analogous to Willige approach in consumer theory under certainty are studied. Similar results hold, mutatis mutandis, for input demands.

Suggested Citation

  • Rulon D. Pope & Jean-Paul Chavas, 1985. "Producer Surplus and Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 853-869.
    • Handle: RePEc:oup:qjecon:v:100:y:1985:i:supplement:p:853-869.
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    File URL: http://hdl.handle.net/10.1093/qje/100.Supplement.853
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    Citations

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    Cited by:

    1. Bullock, David S. & Shin, Kie-Yup & Garcia, Philip, 1999. "Towards Measuring Producer Welfare Under Output Price Uncertainty And Risk Non-Neutrality," 1999 Annual meeting, August 8-11, Nashville, TN 21713, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Yacov Tsur, 1993. "A Simple Procedure to Evaluate Ex Ante Producer Welfare under Price Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(1), pages 44-51.
    3. Bullock, David S. & Garcia, Philip & Shin, Kie-Yup, 2005. "Measuring producer welfare under output price uncertainty and risk non-neutrality," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), pages 1-21.
    4. Chavas, Jean-Paul, 1987. "On Risk Modeling And Its Implications For Economic Analysis," Regional Research Projects > 1987: S-180 Annual Meeting, March 22-25, 1987, San Antonio, Texas 272333, Regional Research Projects > S-180: An Economic Analysis of Risk Management Strategies for Agricultural Production Firms.
    5. Menezes, Carmen F. & Henry Wang, X. & Bigelow, John P., 2005. "Duality and consumption decisions under income and price risk," Journal of Mathematical Economics, Elsevier, vol. 41(3), pages 387-405, April.
    6. Johan Petersson & Hans Andersson, 1996. "The Benefits Of Share Contracts: Some European Results," Journal of Agricultural Economics, Wiley Blackwell, vol. 47(1‐4), pages 158-171, January.
    7. Mahul, Olivier, 2002. "Hedging Price Risk In The Presence Of Crop Yield And Revenue Insurance," 2002 Conference, April 22-23, 2002, St. Louis, Missouri 19070, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    8. Gregor Schwerhoff & Ottmar Edenhofer & Marc Fleurbaey, 2020. "Taxation Of Economic Rents," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 398-423, April.
    9. Beggs, Alan, 2022. "Reference points and learning," Journal of Mathematical Economics, Elsevier, vol. 100(C).
    10. Sebastian Ebert & Daniel Wiesen, 2014. "Joint measurement of risk aversion, prudence, and temperance," Journal of Risk and Uncertainty, Springer, vol. 48(3), pages 231-252, June.
    11. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    12. Tsur, Yacov & Zilberman, David, 1989. "Certainty Equivalent Prices And Producer Welfare Under Output Price Uncertainty," Staff Papers 13562, University of Minnesota, Department of Applied Economics.
    13. Brandon Schaufele & James R. Unterschultz & Tomas Nilsson, 2010. "AgriStability with Catastrophic Price Risk for Cow‐Calf Producers," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(3), pages 361-380, September.
    14. Unknown, 1990. "Land Markets And Farm Incomes In Minnesota," Staff Papers 14102, University of Minnesota, Department of Applied Economics.

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