Using farm consumption data to estimate the intertemporal elasticity of substitution and relative risk aversion coefficients

Abstract

A farm household consumption model based on the life‐cycle permanent income hypothesis (LPIH) has been specified and the Euler equations derived in this analysis. Estimation of the of the Euler equations using farm household consumption data provided estimates for the intertemporal elasticity of substitution and the coefficient of relative risk aversion. These parameters differ among the farm enterprises in which the households were engaged. Estimates for the intertemporal elasticity of substitution and the coefficient of relative risk aversion ranged from 0.158 to 0.351 and from 2.849 to 6.329, respectively. Results also provide further evidence that the LPIH is valid for modeling farm household consumption.

Citation

Abdulkadri, A.O. and Langemeier, M.R. (2000), "Using farm consumption data to estimate the intertemporal elasticity of substitution and relative risk aversion coefficients", Agricultural Finance Review, Vol. 60 No. 1, pp. 61-70. https://doi.org/10.1108/00214690080001110