Risk Preferences Estimation for Small Raspberry Producers in the Bío-Bío Region, Chile

Roger Toledo T.1* and Alejandra Engler P.2

Decisions are strongly influenced by risk and risk preferences of decision makers; however, in Chile there are few studies in the agricultural sector focused on this topic. The present paper analyzes the risk preferences of small producers of raspberries (Rubus 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 the same conclusions. Results showed that small farmers are risk averse (γ = 0.104) and present increasing relative and absolute aversion to risk (θ = 0.099 < 1 and θ < γ, respectively). The hypotheses of risk neutrality (γ = 0) and constant absolute risk aversion (θ = 1) were rejected with 94% and 99% confidence, respectively. The chosen function of production is the Cobb Douglas type, because it 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 β2 + β3 + β4 is equal to 0.18. The hypothesis of constant returns to scale is rejected with 99% confidence.

Keywords: risk aversion, mean-variance utility function, production function.
1 Instituto de Investigaciones Agropecuarias, Centro Regional de Investigación Quilamapu, Casilla 426, Chillán, Chile. E-mail: rtoledo@inia.cl *Corresponding author.
2 Universidad de Talca, Facultad de Ciencias Agrarias, Casilla 747, Talca, Chile. E-mail: mengler@utalca.cl.