Risk preferences and technology are jointly estimated in the nonlinear mean standard deviation framework for a competitive firm model under price risk. A utility function is proposed that nests various risk preference structures and risk neutrality as empirically refutable special cases. The empirical application using firm-level data finds evidence of decreasing absolute risk aversion, differences in the nature of relative risk aversion by firm size, and little support for the widely used linear mean-variance framework. The estimation results also show that ignoring risk and risk preferences can substantially overestimate output supply and input demand elasticities.
“Risk Preference Estimation in the Nonlinear Mean Standard Deviation Approach,” A. Saha, Economic Inquiry, 35 (1997), 770–782