Cost of Agricultural Production Risk (The)

Bruce Babcock and Jason Shogren

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: We examine the relative influence of preferences and technology on producers' ex ante willingness to pay for a reduction in production risk. A risk averse producer pays both an Arrow-Pratt risk premium to stabilize income and a ﾑproduction premiumﾒ to stabilize yield. Using soil-nitrate risks as our motivating example, we demonstrate that the production premium accounts for 40-85% of producers' willingess to pay for risk reduction. These results demonstrate the relative importance of technology over risk preferences when estimating the costs of agricultural production risk.

Date: 1995-08-01
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Published in Agricultural Economics, August 1995, vol. 12, pp. 141-50

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Journal Article: The cost of agricultural production risk (1995)
Journal Article: The cost of agricultural production risk (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:5014

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