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

18 Pages Posted: 28 Apr 2020

See all articles by Sergio H. Lence

Sergio H. Lence

Iowa State University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 2009

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.

Keywords: expected utility, joint estimation, production analysis, risk attitudes, risk preferences

Suggested Citation

Lence, Sergio H., Joint Estimation of Risk Preferences and Technology: Flexible Utility or Futility? (August 2009). American Journal of Agricultural Economics, Vol. 91, Issue 3, pp. 581-598, 2009, Available at SSRN: https://ssrn.com/abstract=3585818 or http://dx.doi.org/10.1111/j.1467-8276.2009.01274.x

Sergio H. Lence (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States

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