An Investigation of the Importance of Risk in Farmers' Decisions

This paper presents an empirical investigation of the importance of risk in decisions. The adaptive expectations geometric lag model is generalized by geometrically including quadratic lag terms indicative of risk. The computation of consistent estimators is described, and the model is applied in the analysis of California field‐crop supply response. Results indicate that the effects of stabilization (possibly associated with government programs) might have seriously offset the acreage‐reducing effects of voluntary acreage restrictions. Finally, more general implications relating to reduced‐form estimation of the standard Nerlovian model are discussed.