Risk Preference Estimation in the Nonlinear Mean Standard Deviation Approach
Economic Inquiry, 1997, vol. 35, issue 4, 770-82
Risk preferences and technology are jointly estimated in the nonlinear mean-standard deviation framework for a competitive firm model under price risk. A utility function is proposed that nests various risk preference structures and risk neutrality as empirically refutable special cases. The empirical application using firm-level data finds evidence of decreasing absolute risk aversion, differences in the nature of relative risk aversion by firm size, and little support for the widely used linear mean-variance framework. The estimation results also show that ignoring risk and risk preferences can substantially overestimate output supply and input demand elasticities. Copyright 1997 by Oxford University Press.
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ecinqu:v:35:y:1997:i:4:p:770-82
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