(13)
V(σ, μ) = μθ - σ,
where θ and γ are parameters that are restricted to θ > 0 and γ > 0 ,5 and then argued that it
is capable of displaying any type of risk aversion as shown in table 3. The argument derives
from the properties of its slope of indifference curve,
(14) S(σ, μ) = Yμ1-θσγ-1.
θ
The Cobb-Douglas type’s slope of indifference curve fully covers Properties 5 and 6 of
Proposition 2 under the parametric range, θ > 0 and γ > 0 . For example, the slope is
decreasing (constant, increasing) in μ if θ > 1 ( θ = 1, θ < 1 ), while it is decreasing (constant,
increasing) along rays through the origin when θ> γ ( θ= γ, θ< γ). In other words, it is
compatible with conditions (4-i), (4-ii), (4-iii), (5-i), (5-ii) and (5-iii). Besides, it is tractable
that the type of risk aversion is determined only by the parameters’ value. That is quite
attractive in empirical work, because statistical test on the parameters directly indicates the
agent’s type of risk aversion. The NLMS model has been applied in the field of production
economics under uncertainty. For example, Saha (1997) applied the model to examine the
Kansas wheat producers’ behavior under price uncertainty during 1979 and 1982. He
obtained the empirical results that the parameter θ is significantly more than 1 for both
small and large producers and that the parameters γ was significantly larger than θ for
small producer and that null hypothesis, γ= θ, was not rejected for large producer,
concluding that both producers exhibit DARA and relative risk aversion can vary by the firm
size. On the other hand, Abdulkadri, Langemeier and Featherstone (2003), applying the
NLMS model, investigated Kansas dryland wheat producers, irrigated corn producers and
21
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