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Abstract

This article compares the use of risk-increasing and risk-reducing production inputs with the experimentally measured risk attitudes of farmers. For this purpose, a Just-Pope production function indicates production inputs’ influence on output risk, and a Holt-Laury lottery is used to measure farmers’ risk attitudes. We then test whether more risk averse farmers use more risk-reducing and less risk-increasing production inputs. To do so, a unique data set which includes 185 small-scale rubber farmers on the island of Sumatra, Indonesia, is used. The Just-Pope production function suggests that higher fertiliser usage has a risk-reducing effect, whereas higher herbicide usage has a risk-increasing effect. Comparing this with the outcome of a Holt-Laury lottery, we found that more risk averse farmers use more fertiliser (risk-reducing) and less herbicides (risk-increasing). The consistency of these results can be interpreted as reinforcing the external validity of measuring risk attitude with a Holt-Laury lottery.

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