Joint Estimation of Risk Preference Structure and Technology Using Expo‐Power Utility

Abstract

Abstract A method is developed to permit joint estimation of risk preference structure, degree of risk aversion, and production technology. The method is implemented using the Expo‐Power utility function, which imposes no restrictions on risk preference structure. The empirical application uses data from a sample of Kansas wheat farmers. Evidence rejects the null hypothesis of risk neutrality and suggests that Kansas farmers exhibit decreasing absolute risk aversion and increasing relative risk aversion. Results also show that combined estimation of production function parameters with the utility function parameter is more efficient than is separate estimation of each.

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