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Productivity and Producer Welfare in the Presence of Production Risk
Author(s) -
Orea Luis,
Wall Alan
Publication year - 2012
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/j.1477-9552.2011.00320.x
Subject(s) - welfare , production (economics) , economics , productivity , total factor productivity , offset (computer science) , agricultural productivity , risk premium , agriculture , agricultural economics , public economics , microeconomics , econometrics , macroeconomics , market economy , ecology , biology , computer science , programming language
Production risk is an inherent characteristic of agriculture and changes in production risk will affect the welfare of risk‐averse producers. Using standard concepts from the literature on uncertainty, we introduce a welfare measure which comprises total factor productivity (TFP), production risk and farmer risk preferences, and which reflects the impact on producer welfare of changes in production technology. An empirical application is carried out using data from a sample of Spanish dairy farms which shows how the positive impact of increases in TFP on welfare can be offset by increases in the risk premium (‘cost of risk’) to the point where welfare may decrease.