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Abstract This paper investigates the effects of crop genetic diversity on farm productivity and production risk in the highlands of Ethiopia. Using a moment‐based approach, the analysis uses a stochastic production function capturing mean, variance, and skewness effects. Welfare implications of diversity are evaluated using a certainty equivalent, measured as expected income minus a risk premium (reflecting the cost of risk). We find that the effect of diversity on skewness dominates its effect on variance, meaning that diversity reduces the cost of risk. The analysis also shows that the beneficial effects of diversity become of greater value in degraded land.
Falco et al. (Wed,) studied this question.