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Joint Estimation of Risk Preferences and Technology: Flexible Utility or Futility?
Author(s) -
Lence Sergio H.
Publication year - 2009
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2009.01274.x
Subject(s) - risk aversion (psychology) , economics , econometrics , identification (biology) , production (economics) , estimation , quality (philosophy) , expected utility hypothesis , microeconomics , financial economics , management , philosophy , botany , epistemology , biology
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.