Risk preferences estimation for small raspberry producers in the Bio-Bio Region, Chile

Abstract

Decisions are strongly influenced by Ask and Ask preferences or decision makes; however, in Chile there are few studies in Me agricultural sector focused on this topic. The present paper analyzes the risk preferences of small producers or raspberries (Win idaeus L.) and the production function associated with their production system in the Bio-Bio Region of Chile. Under a mean-variance approach, the estimation procedure uses a flexible utility Function to incorporate a variety of risk preference alternatives. Three different estimation procedures were used: Least Squares Estimation, Seemingly Unrelated Regression and Full Information Maximum Likelihood, which revealed Me same Conclusions. Results showed that small farmers are risk averse (gamma=0.104) and present increasing relative and absolute aversion to risk (theta =0.099 < 1 and theta < gamma, respectively). The hypotheses of risk neutrality (gamma = 0) and constant absolute risk aversion (theta = 1) were rejected with 94% and 99% confidence, respectively. The chosen function of production is the Cobb Douglas type, because A presents a better adjustment, and the relevant factors are fertilizer quantity per hectare, the experience of the producer and the planted area. This Function presents decreasing returns to scale, then beta(2)+beta(3)+beta(4) is equal to 0.18. The hypothesis of constant returns to scale is rejected with 99%, confidence.