Scale, productivity growth and risk response under uncertainty

Jana Hranaiova, Spiro E. Stefanou


This study focuses on the analysis of the production behavior and risk preferences in the presence of output price uncertainty. Following a theoretical model based on the assumption of maximization of expected utility of profits, the approach used in this study infers information about risk preferences from the production characteristics of the farm. In addition, the nonparametric method of estimating elasticity of scale and technical change eliminates the need to impose a uniform production or cost functions on individual producers. The approach is applied to a panel of dairy farms, which are evaluated for their elasticity of scale and the total productivity growth components of their operations. Estimates of farmers' risk attitudes represented by individual marginal risk premiums are also related to socio-economic attributes of farmers. Overall, farm size plays an important role in explaining productivity and scale differences and has the most significant negative effect on marginal risk aversion. The magnitude of the impact of additions to the farm's dairy herd increases with scale of operations.


Uncertainty; Risk Aversion; Productivity Growth

Subject classification


Full Text:



Binswanger, H.P., "Attitudes Towards Risk: Experimental Measurement in Rural India," American Journal of Agricultural Economics 62(1980): 395-407.

Chamber, R. G. “Duality, the Output Effect, and Applied Comparative Statics,” American Journal of Agricultural Economics 64(1982): 152-56.

Chambers, R.G., "Scale and Productivity Measurement Under Risk." American Economic Review 73 (1983): 802-5.

Chambers, R.G. Applied Production Analysis. Cambridge University Press, 1988. Fernandez-Cornejo, J., C. Gempesaw, J. Elterich, and S.E. Stefanou, "Dynamic Measures of Scope and Scale Economies and the Dynamic Theory of Cost," American Journal of Agricultural Economics 74 (1992): 283-99.

Flacco, P.R. and D.M. Larson, "Nonparametric Measures of Scale and Technical Change for Competitive Firms Under Uncertainty." American Journal of Agricultural Economics (1992): 173-6.

Ford, B.P., W.N. Musser, and R.D. Yonkers, "Measuring Historical Risk in Quarterly Milk Prices." Agricultural and Resource Economics Review (1993): 20-26.

Luh, Y.-H. and S. E. Stefanou, "Learning-By-Doing and the Sources of Productivity Growth: A Dynamic Model with Application to U.S. Agriculture," Journal of Productivity Analysis 4 (1993): 353-70.

Penn State University, 1992 Pennsylvania Dairy Farm Business Analysis. College of Agricultural Sciences, Cooperative Extension, Extension Circular 414. Agricultural Economics, August 1982: 581-4.

Pratt, J.W., “Risk Aversion in the Small and in the Large,” Econometrica 32, (1964): 122-36.

Sandmo, A, "On the Theory of the Competitive Firm Under Price Uncertainty." American Economic Review 61 (1971): 65-73.

Smith, S.F., W.A. Knoblauch, and L.D. Putnam, Business Summary. New York State. 1992." Agricultural Economic Research 93-11, Department of Agricultural Economics, Cornell Univ., August 1993.

United States Department of Agriculture, National Agricultural Statistics Service. “Agricultural Statistics, 1994.” United States Government Printing Office, Washington, DC, 1994.

Abstract Views

Metrics Loading ...

Metrics powered by PLOS ALM


  • There are currently no refbacks.

 Universitat Politècnica de València

e-ISSN: 2174-7350   ISSN: 1578-0732