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Abstract

In this paper we determine the risk preferences of crop producers using the safety-first method. Our methodology is unique, since it utilizes both price and yield risk in the producer’s optimization problem. We then compare the derived preferences with the stated preferences of the producers. The stated preferences are obtained from a lottery-style game designed to elicit producers’ risk preferences. The study is conducted with data from producers in Nebraska, Iowa and South Dakota and the results indicate that there is in fact a relationship between the preferences derived from our structural model and the ones stated by the producers in the game. This is an important result from a policy-making perspective, as it validates the use of behavior elicitation surveys about risk preferences. Such surveys are often easier to administer and less expensive than collecting information on revealed preferences.

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