Document Type

Article

Publication Date

7-1995

Journal or Book Title

Journal of Agricultural and Resource Economics

Volume

20

Issue

1

First Page or Article ID Number

49

Last Page

62

Abstract

Estimation risk occurs when parameters relevant for decision making are uncertain. Bayes' criterion is consistent with expected-utility maximization in the presence of estimation risk. This article examines optimal (Bayes') land allocations and land allocations obtained using the traditional plug-in approach and two alternative decision rules. Bayes' allocations are much better economically than the other allocations when there are few sample observations relative to activities. Calculation of certainty equivalent returns (CERs) with estimation risk is also discussed and illustrated. CERs are typically (and incorrectly) calculated with the plug-in approach. Plug-in CERs may be extremely misleading.

Comments

This article is from Journal of Agricultural and Resource Economics 20, no. 1 (1995) 49–63.

Copyright Owner

Western Agricultural Economics Association

Language

en

File Format

application/pdf

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