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Available from: Bhavani Shankar, Aug 04, 2014
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    • "A well-known problem in primal production analysis, that must be addressed by the estimation method, is the likely endogeneity of inputs x. There are two main reasons as discussed in Shankar and Nelson (2003) for inputs to be correlated with production error terms. First, some inputs may be correlated with farmer's unobserved heterogeneity contained in the error term (reflecting, e.g., differences in land quality, farmer's management ability, or omitted variable inputs). "
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    ABSTRACT: This paper addresses the issue of agricultural production under both output level and output price risks, in a context of random climatic conditions affecting forage used in beef production. It contributes to the empirical literature by applying the framework proposed by Isik (2002) to derive estimating equations from a structural production model with two sources of risks. Flexible functional forms for risk preferences and production technology allow us to identify attitudes toward risk and compute marginal effects of inputs and climate on expected output and production risk. The model is applied on a panel of French cattle farms and estimation results suggest that cattle farmer exhibit strong risk aversion of the CRRA form, and that climate has a significant impact on the performance of animal feeding strategies.