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Abstract

In the paper, an econometric model is proposed to test the risk balancing hypothesis using farm level data. For the purpose, a constraint on expected utility maximization with respect to farm financial structure is given. Cluster method is applied to pick out the farms on the efficient frontier under expected utility maximization given risk attitude and actual interest rate. Regression results are given and compared to previous findings. Farm characteristics associated with the risk behaviors of farms with optimal utility are identified and compared with other farms.

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