Economics at your fingertips  

Producer Attitudes Toward Output Price Risk: Experimental Evidence from the Lab and from the Field

Marc Bellemare (), Yu Na Lee () and David Just

American Journal of Agricultural Economics, 2020, vol. 102, issue 3, 806-825

Abstract: A number of agricultural and food policy instruments are predicated on the idea that producers dislike output price risk. We test experimentally some theoretical predictions about the behavior of producers in the face of output price risk, namely Sandmo's (1971) prediction that price risk at the extensive margin causes risk‐averse producers to decrease how much they produce and Batra and Ullah's (1974) prediction that price risk at the intensive margin causes producers whose preferences exhibit decreasing absolute risk aversion to further decrease how much they produce. We do so in labs with US college students as well as in the field with Peruvian farmers. First, as regards price risk at the extensive margin, we find no support for Sandmo's prediction. Second, consistent with Batra and Ullah's prediction, we find that output decreases in response to price risk at the intensive margin when imposing a linear relationship between output and price risk. When relaxing the assumption of linearity between output and price risk, however, we find a nonmonotonic relationship between output and price risk. Taken together, these results are broadly inconsistent with expected utility theory. Alternative models of behavior in the face of risk, such as prospect theory, may explain the behavior we observe.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

More articles in American Journal of Agricultural Economics from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2021-04-17
Handle: RePEc:wly:ajagec:v:102:y:2020:i:3:p:806-825