Files
Abstract
We argue in this paper that available econometric estimates of farmers’ risk aversion do not
measure true farmers’ preferences towards risky outcomes. Available analyses are mostly of
static nature and indeed measure the parameters of the synthetic optimal value function rather
than the deep parameters of the utility functions. We derive analytical and empirical results in
a simple dynamic and stochastic framework showing that that there is not a simple
relationship between utility functions and value functions when agents have many decision
variables. In particular we find that the value function does not necessarily exhibit DARA
when the instantaneous utility function satisfies DARA and conversely. We recommend
performing dynamic econometric estimation with at least farm production and consumption
data.