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Joint Estimation of Risk Preferences and Technology: Flexible Utility or Futility?

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  • Lence, Sergio H.

Abstract

A thought experiment is designed to investigate whether the structure of risk aversion (i.e., the changes in absolute or relative risk aversion associated with changes in wealth) can be estimated with reasonable precision from agricultural production data. Findings strongly suggest that typical production data are unlikely to allow identification of the structure of risk aversion. A flexible utility parameterization is found to slightly worsen technology parameter estimates. Results also indicate that even under a restricted utility specification, utility parameter estimates are biased. Further, their quality is much worse when shocks are not large or samples are small.

Suggested Citation

  • Lence, Sergio H., 2009. "Joint Estimation of Risk Preferences and Technology: Flexible Utility or Futility?," Staff General Research Papers Archive 13028, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:13028
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    File URL: http://www2.econ.iastate.edu/papers/p1742-2009-10-05.pdf
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    Cited by:

    1. Sébastien Foudi, 2012. "Exploitation of soil biota ecosystem services in agriculture: a bioeconomic approach," Working Papers 2012-02, BC3.
    2. Ruishi Si & Xueqian Zhang & Yumeng Yao & Qian Lu, 2022. "Risk Preference, Health Risk Perception, and Environmental Exposure Nexus: Evidence from Rural Women as Pig Breeders, China," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 162(1), pages 151-178, July.
    3. Viaggi, Davide & Raggi, Meri & Gomez y Paloma, Sergio, 2011. "Farm-household investment behaviour and the CAP decoupling: Methodological issues in assessing policy impacts," Journal of Policy Modeling, Elsevier, vol. 33(1), pages 127-145, January.
    4. 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).
    5. Xavier Vollenweider & Salvatore Di Falco & Cathal O�Donoghue, 2011. "Risk preferences and voluntary agrienvironmental schemes: does risk aversion explain the uptake of the Rural Environment Protection Scheme?," GRI Working Papers 48, Grantham Research Institute on Climate Change and the Environment.
    6. Wu, Feng & Guan, Zhengfei, 2014. "Efficient Estimation of Risk Attitude with Seminonparametric Risk Modeling," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170625, Agricultural and Applied Economics Association.
    7. Cao, Ruixuan & Carpentier, Alain & Gohin, Alexandre, 2011. "Measuring farmers’ risk aversion: the unknown properties of the value function," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114623, European Association of Agricultural Economists.
    8. Bontemps, Christophe & Bougherara, Douadia & Nauges, Céline, 2020. "Do Risk Preferences Really Matter? The Case of Pesticide Use in Agriculture," TSE Working Papers 20-1095, Toulouse School of Economics (TSE).
    9. Awondo, Sebastain Nde & Fonsah, Esendugue Greg & Riley, David G., 2012. "Are Tomato-Spotted Wilt Virus Management Tactics Good Enough?," 2012 Annual Meeting, February 4-7, 2012, Birmingham, Alabama 119790, Southern Agricultural Economics Association.
    10. Carpentier, Alain & Gohin, Alexandre & Sckokai, Paolo & Thomas, Alban, 2015. "Economic modelling of agricultural production: past advances and new challenges," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 96(01), pages 131-165, March.
    11. Sidibé, Yoro & Foudi, Sébastien & Pascual, Unai & Termansen, Mette, 2018. "Adaptation to Climate Change in Rainfed Agriculture in the Global South: Soil Biodiversity as Natural Insurance," Ecological Economics, Elsevier, vol. 146(C), pages 588-596.
    12. Guan, Zhengfei & Wu, Feng, 2014. "Non-Optimal Behavior and Estimation of Risk Preferences," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170636, Agricultural and Applied Economics Association.
    13. Nauges, Céline & Bougherara, Douadia & Koussoubé, Estelle, 2021. "Fertilizer use and risk: New evidence from Sub-Saharan Africa," TSE Working Papers 21-1266, Toulouse School of Economics (TSE).
    14. Moser, Stefan & Mußhoff, Oliver, 2017. "Comparing the Use of Risk influencing Production Inputs and Experimentally Measured Risk Attitude: Do the Decisions of Indonesian Small scale Rubber Farmers Match?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 66(2), June.
    15. Carpentier, A. & Reboud, X., 2018. "Why farmers consider pesticides the ultimate in crop protection: economic and behavioral insights," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277528, International Association of Agricultural Economists.
    16. Alain Carpentier & Alexandre Gohin, 2015. "On the economic theory of crop rotations: value of the crop rotation effects and implications on acreage choice modeling," Working Papers SMART 15-04, INRAE UMR SMART.
    17. Antti Saastamoinen, 2015. "Heteroscedasticity Or Production Risk? A Synthetic View," Journal of Economic Surveys, Wiley Blackwell, vol. 29(3), pages 459-478, July.
    18. Skevas, Theodoros & Stefanou, Spiro E. & Oude Lansink, Alfons, 2014. "Pesticide use, environmental spillovers and efficiency: A DEA risk-adjusted efficiency approach applied to Dutch arable farming," European Journal of Operational Research, Elsevier, vol. 237(2), pages 658-664.
    19. Luigi Biagini & Simone Severini, 2022. "How Does the Farmer Strike a Balance between Income and Risk across Inputs? An Application in Italian Field Crop Farms," Sustainability, MDPI, vol. 14(23), pages 1-15, December.
    20. Carpentier, Alain, 2017. "Risk Aversion And Pesticide Use: Further Insights From Prospect Theory," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261265, European Association of Agricultural Economists.
    21. Moro, Daniele & Sckokai, Paolo, 2013. "The impact of decoupled payments on farm choices: Conceptual and methodological challenges," Food Policy, Elsevier, vol. 41(C), pages 28-38.
    22. Howard, Gregory E. & Roe, Brian E., 2011. "Comparing the Risk Attitudes of U.S. and German Farmers," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114528, European Association of Agricultural Economists.

    More about this item

    Keywords

    expected utility; joint estimation; production analysis; risk attitudes; risk preferences;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General

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