Measuring farmers’ risk aversion: the unknown properties of the value function

Ruixuan Cao, Alain Carpentier and Alexandre Gohin

No 114623, 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland from European Association of Agricultural Economists

Abstract: We argue in this paper that available econometric estimates of farmers’ risk aversion do not measure true farmers’ preferences towards risky outcomes. Available analyses are mostly of static nature and indeed measure the parameters of the synthetic optimal value function rather than the deep parameters of the utility functions. We derive analytical and empirical results in a simple dynamic and stochastic framework showing that that there is not a simple relationship between utility functions and value functions when agents have many decision variables. In particular we find that the value function does not necessarily exhibit DARA when the instantaneous utility function satisfies DARA and conversely. We recommend performing dynamic econometric estimation with at least farm production and consumption data.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 13
Date: 2011
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae11:114623

DOI: 10.22004/ag.econ.114623

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