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Production risk in multi-output industries: estimates from Norwegian dairy farms

Ragnar Tveterås (), Ola Flaten and Gudbrand Lien

Applied Economics, 2011, vol. 43, issue 28, 4403-4414

Abstract: Farmers who produce multiple outputs are portfolio managers in the sense that they use inputs to balance expected economic return and variance of return. This article estimates the structure of the stochastic multioutput production technology in Norwegian dairy farming, allowing for a more flexible specification of the technology than previous studies. We find that an increase in input levels leads primarily to higher output variability, and that inputs also influence the covariance of shocks between outputs. Risk reducing effects of inputs on outputs are primarily present in the covariance functions. Technical change leads to shifts in the profit distribution over the data period, but no welfare improvement for risk averse farmers.

Date: 2011
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DOI: 10.1080/00036846.2010.491461

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