Calibrating the wealth effects of decoupled payments: Does decreasing absolute risk aversion matter?

Measuring the effect of risk attitude on marketing behavior

“…Just and Peterson (, p. 16) identify, “EUT is … applicable only when expected payoffs of gambles are similar or when more than half of wealth is at risk,” which would make measuring preferences of most nondeveloping world agricultural producers extremely costly. Similarly, Just () concludes that large wealth transfers are necessary to justify large changes in risk aversion under EUT and suggests that prospect theory also seems inappropriate given his results. Just and Lybbert (, p. 1) investigate aversion to marginal changes in risk as opposed to standard measures of (average) risk aversion and suggest, “While a high degree of correspondence can be found between these experimental results and real‐world response to risk (e.g., Pennings and Garcia, ), framing risk as static gambles in isolation may be too restrictive a frame.” Other efforts to make experiments more consistent with the real world include distinguishing between risk (i.e., outcomes with known probabilities) and ambiguity (uncertainty about probabilities) and accounting for background risk in addition to the focal risk studied (Barham et al., ; Herberich and List, ).…”

“…Recent studies call into question the applicability of theory and procedures commonly underlying experimental elicitation of risk preferences. For instance, Just and Peterson () and Just () employ a method to assess the empirical adequacy of EUT by calibrating a utility function to revealed behavior. Empirically, both studies find limited applicability of EUT.…”

“…Notwithstanding these findings, “simple questions and Likert multi‐item scales are often preferred by applied researchers because of their ease of inclusion in mail surveys and/or their relative low cost …” (Hudson et al., , p. 41) . Recently recognized concerns about empirical implementation of expected utility theory (EUT) add to the uncertainty of how to effectively measure risk preferences and their impact on behavior (e.g., Just, ; Just and Peterson, ; Just et al., ). Clearly, these limitations do not preclude use of EUT, but they do raise questions about its relative ability to predict behavior as well as its use to describe or prescribe behavior.…”

The Effects of Policy Expectations on Crop Supply, with an Application to Base Updating

“…The increase in a farmer's wealth from government payments may affect production by decreasing risk aversion (e.g., Hennessy 1998;Just 2011;Serra, Goodwin, and Featherstone 2011), easing credit constraints (e.g., Roe, Somwaru, and Diao 2002;Girante, Goodwin, and Featherstone 2008), increasing labor supplied to farming (e.g., Ahearn, El-Osta, and Dewbre 2006;Key and Roberts 2009), and increasing farm survival (Chau and de Gorter 2005). Since counter-cyclical payments depend on prices, they reduce the probability of low returns and may increase acreage for risk averse farmers, or increase available credit (e.g., Hennessy 1998; Antón and Mouël 2004;Lin and Dismukes 2007).…”

The Decoupling of Farm Programs: Revisiting the Wealth Effect

“…2007Serra, Zilberman, and Gil 2007. Simulation modelling analysis include Young et Westcott 2000, Burfisher, Robinson, and Thierfelder 2000, Mullen et al 2001, Anton et Le Mouel 2002, OECD 2004, Anton et Le Mouël 2004, Anton and Giner 2005, Just 2006.…”