Choi, E. Kwan

By: Choi, E. Kwan; Feinerman, Eli
This paper investigates the effects of first-best policies to regulate nitrogen application. Some nitrogen fertilizer is applied ex ante before a random rainfall, but sidedressed nitrogen may be applied ex post. First-best policy is a tax or a quota on ex ante application, because sidedressed nitrogen is not leached. Since a risk-averse farmer uses more nitrogen ex ante than a risk-neutral farmer, a higher tax must be imposed on the former. Action equivalent first-best taxes and quotas are also welfare equivalent. An empirical model for wheat in Israel was used to demonstrate the analytical findings.
By: Babcock, Bruce A.; Choi, E. Kwan; Feinerman, Eli
The risk premium and the probability premium are used to determine appropriate coefficients of absolute risk aversion under CARA utility. A defensible range of risk aversion coefficients is defined by the coefficients that correspond to risk premiums falling between 1 and 99% of the amount at risk or to probability premiums falling between .005 and .49 for a lottery that pays or loses a given sum. The consequences of ignoring risk premiums when selecting risk-aversion coefficients for representative decision makers are illustrated by calculation of the implied risk premium associated with the levels of absolute risk aversion assumed in six selected studies.