The cost of agricultural production risk

Bruce Babcock and Jason Shogren

Agricultural Economics, 1995, vol. 12, issue 2, 141-150

Abstract: We examine the relative influence of preferences and technology on producers' ex ante willingness to pay for a reduction in production risk. A risk averse producer pays both an Arrow‐Pratt risk premium to stabilize income and a ‘production premium’ to stabilize yield. Using soil‐nitrate risks as our motivating example, we demonstrate that the production premium accounts for 40‐85% of producers' willingness to pay for risk reduction. These results demonstrate the relative importance of technology over risk preferences when estimating the costs of agricultural production risk.

Date: 1995
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https://doi.org/10.1111/j.1574-0862.1995.tb00358.x

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Journal Article: The cost of agricultural production risk (1995)
Working Paper: Cost of Agricultural Production Risk (The) (1995)
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