Bougherara, Douadia and Nauges, Céline (2018) How laboratory experiments could help disentangle the influences of production risk and risk preferences on input decisions. TSE Working Paper, n. 18-903, Toulouse

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Abstract

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.