Babcock, Bruce A.; Shogren, Jason F.

Agricultural Economics Vol. 12 (August 1995): 141-50.

We examine the relative influence of preferences and technology on producers' ex ante willingness to pay for a reduction in production risk. A risk averse producer pays both an Arrow-Pratt risk premium to stabilize income and a ﾑproduction premiumﾒ to stabilize yield. Using soil-nitrate risks as our motivating example, we demonstrate that the production premium accounts for 40ﾖ85% of producers' willingess to pay for risk reduction. These results demonstrate the relative importance of technology over risk preferences when estimating the costs of agricultural production risk.