milk producers under price uncertainty during 1993 and 1997. They obtained the empirical
results supporting that dryland wheat and milk producers are risk averter of IARA and IRRA
while irrigated corn farmers are risk averter of CARA and IRRA. The interpretation of the
NLMS model about their empirical results follows table 3.
Although Saha (1997) and Abdulkadri, Langemeier and Featherstone (2003) argue
from the comparison of table 3 with table 1 that the NLMS model provides a more
generalized approach than EU theory, there is room for more careful consideration on the
interpretation of the NLMS model. As discussed in the beginning of this article, the MS
approach established by Sinn (1983) and Meyer (1987) is a special case of EU theory and
therefore has to satisfy the restrictions imposed on EU theory. This study focused on the
three restrictions, (a) cardinal property of vNM utility function, (b) behavioral hypotheses
that are translated under LS condition from EU theory into MS approach, (c) relationship
between Arrow-Pratt’s risk aversion measures. Apart from the restriction (a) that will be
discussed in the next section, it is easy to see that the interpretation of table 3 does not fully
satisfy the restrictions (b) and (c). Firstly, as for the restrictions (c), there are certain
combinations of risk aversion that are not feasible such as CARA & DRRA, CARA & CRRA,
IARA & DRRA and IARA & CRRA (table 1). So long as the NLMS model is interpreted by
the MS approach based on EU theory, it may not display those combinations either. This
excludes from table 3 the parameters’ combinations such as θ = 1 & θ> γ, θ = 1 & θ= γ,
θ < 1 & θ> γ and θ < 1 & θ= γ. Secondly, the restrictions (b) and (c) derive Propositions
3 and 4 for the feasible combinations of risk aversion measures. As the NLMS model is
additively separable, Proposition 3 (1) indicates that it may not display DARA under LS
condition. There should be still some restriction that is overlooked by the interpretation of
table 3. If MS function displays all the feasible combinations of the risk aversion measures
under LS condition, then it must entirely satisfy conditions (1), (2), (3-i), (3-ii) and (3-iii) and
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