Economic efficiency adjusted for risk preferences

Elizabeth Yeager and Michael Langemeier

Applied Economics, 2017, vol. 49, issue 16, 1627-1636

Abstract: This study investigates the impact of risk preferences on cost and revenue efficiency for a sample of farms. Risk preference scores were used to measure risk aversion. Cost and revenue efficiency were estimated using traditional input and output measures, and then re-estimated including each farm’s risk preference score. Comparisons were made between farms with and without a change in efficiency when each farm’s risk preference was included in the analysis. As expected, risk preference plays an important role in explaining farm inefficiency. Failure to account for risk preferences overstates inefficiency, particularly for slightly risk averse and risk neutral farms.

Date: 2017
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Working Paper: Economic Efficiency Adjusted for Risk Preferences (2012)
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DOI: 10.1080/00036846.2016.1223819

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