The purpose of this article is to further our understanding of input choices (such as pesticides or fertilisers) when producers face production risk that depends on a random shock and on the quantity of input used. Using laboratory experiments, we study the role of risk preferences and public policies (here, a lump-sum subsidy and insurance) on producers’ input decisions in two situations: i) a risk-decreasing input; and ii) a risk-increasing input. Our findings raise questions on the sensitivity of optimal input choices to risk preferences and the relevance of the expected utility model to describe farmers’ decisions.
laboratory experiment; input choice; production risk; risk preferences; subsidy; insurance;
Douadia Bougherara, and Céline Nauges, “How laboratory experiments could help disentangle the influences of production risk and risk preferences on input decisions”, TSE Working Paper, n. 18-903, March 2018.
TSE Working Paper, n. 18-903, March 2018