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Cost Function Estimation under Risk Aversion
Author(s) -
Pope Rulon D.,
Just Richard E.
Publication year - 1998
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 - 10.2307/1244502
Subject(s) - function (biology) , estimation , risk aversion (psychology) , ex ante , production (economics) , economics , econometrics , returns to scale , constant (computer programming) , production function , scale (ratio) , mathematical optimization , mathematics , computer science , mathematical economics , expected utility hypothesis , microeconomics , physics , management , macroeconomics , quantum mechanics , evolutionary biology , programming language , biology
Standard definitions of the cost function do not admit risk. Standard ( ex post ) approaches to cost function estimation yield biased and inconsistent estimates when production is stochastic. Recently an ( ex ante ) approach to cost function estimation with stochastic production has been developed by imbedding the distance function in the cost function estimation problem. We generalize the approach to consider risk aversion in decision making. Only two empirical studies have considered stochastic production in cost function estimation. Both have required constant returns to scale. We demonstrate a methodology sufficiently general to consider nonconstant returns to scale.