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Standard and Bayesian Random Coefficient Model Estimation of US Corn–Soybean Farmer Risk Attitudes

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Part of the book series: Studies in Productivity and Efficiency ((SIPE,volume 7))

Abstract

We estimated standard and Bayesian random coefficient models (RCMs) to examine the risk attitudes of US corn–soybean farmers by revenue class using national survey data covering the 2000–2006 growing seasons. Attitudes toward risk are shown to depend on revenue class, with the magnitude of the effect being relatively small. The hypothesis of risk-neutral preferences is not rejected for small- or medium-revenue farmers but is rejected, in favor of a very slight level of risk tolerance, for large- and very large-revenue farmers and for the entire sample of farmer types. The hypothesis of downside risk neutrality is not rejected for small-revenue farmers but is rejected, in favor of a very slight level of downside risk aversion, for medium-, large-, and very large-revenue farmers. Although risk neutrality is rejected for the entire sample of farmer types, the magnitudes of our estimates of the coefficients of absolute risk aversion and absolute downside risk aversion are extremely small. This suggests that the frequent assumption of risk-neutral preferences adopted in the agricultural economics literature is justifiable for the case of US corn–soybean farmers during 2000–2006.

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Correspondence to Michael Livingston .

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Disclaimer: The views and findings reported in this chapter are solely those of the author(s). They do not necessarily reflect the views, positions, or other findings of the USDA. The chapter was not reviewed or approved by any agency of the USDA.

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Livingston, M., Erickson, K., Mishra, A. (2010). Standard and Bayesian Random Coefficient Model Estimation of US Corn–Soybean Farmer Risk Attitudes. In: Ball, V., Fanfani, R., Gutierrez, L. (eds) The Economic Impact of Public Support to Agriculture. Studies in Productivity and Efficiency, vol 7. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-6385-7_17

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