Journal
EUROPEAN REVIEW OF AGRICULTURAL ECONOMICS
Volume 38, Issue 4, Pages 449-467Publisher
OXFORD UNIV PRESS
DOI: 10.1093/erae/jbr014
Keywords
state-contingent production theory; uncertainty; inefficiency; Finland
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In this article, we present one of the first real-world empirical applications of state-contingent production theory. Our state-contingent behavioural model allows us to analyse production under both inefficiency and uncertainty without regard to the nature of producer risk preferences. Using farm data for Finland, we estimate a flexible production model that permits substitutability between state-contingent outputs. We test empirically and reject an assumption that has been implicit in almost all efficiency studies conducted in the last three decades, namely that the production technology is output-cubical, i.e. that outputs are not substitutable between states of nature.
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