Economic efficiency adjusted for risk preferences. Issue 16 (3rd April 2017)

• Record Type: Journal Article
• Authors: Yeager, Elizabeth A.; Langemeier, Michael R.
• Is Part Of: Applied economics. Volume 49:Issue 16(2017)
• Page Start: 1627
• Page End: 1636
• Publication Date: 2017-04-03
• Subjects: Cost efficiency -- revenue efficiency -- risk preference -- data envelope analysis; C14 -- D29 -- D81; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2016.1223819
• Languages: English
• ISSNs: 0003-6846

Abstract

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.