Tests for the Role of Risk Aversion on Input Use

14 Pages Posted: 31 Mar 2020

See all articles by Jutta Roosen

Jutta Roosen

Technische Universität München (TUM) - TUM School of Management

David Hennessy

Iowa State University

Multiple version iconThere are 2 versions of this paper

Date Written: February 2003

Abstract

For risk‐averting agents, risks alter production decisions while the existence of institutions to insure against adverse states of nature will likely restore decisions toward levels under risk neutrality. In this article, conditions are identified on a stochastic technology to test Hrn: that risk averters choose smaller input levels than risk neutral agents, and Hra: that an increase in risk aversion reduces input use. A robust statistical method to test for dominance is adapted to stochastic production relations. It is found that Hrn is likely true for nitrogen application on Iowa corn. Weaker evidence is found in favor of Hra.

Keywords: dominance tests, incomplete risk markets, pollution, stochastic technology

Suggested Citation

Roosen, Jutta and Hennessy, David, Tests for the Role of Risk Aversion on Input Use (February 2003). American Journal of Agricultural Economics, Vol. 85, Issue 1, pp. 30-43, 2003, Available at SSRN: https://ssrn.com/abstract=3564559 or http://dx.doi.org/10.1111/1467-8276.00101

Jutta Roosen (Contact Author)

Technische Universität München (TUM) - TUM School of Management ( email )

Freising
Germany

David Hennessy

Iowa State University

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