TECHNICAL EFFICIENCY, RISK ATTITUDE, AND ADOPTION OF NEW TECHNOLOGY - THE CASE OF THE UNITED-STATES DAIRY-INDUSTRY

This article analyzes the separate effects of technical efficiency and risk attitudes on the adoption of new technologies. We develop a model of firm behavior that incorporates both risk preferences and inefficiency into input and output decisions of the firm. The separate effects of risk aversion and inefficiency on adoption deicisions are estimated econometrically. In the first step, we estimate technical inefficiency using the stochastic frontier approach. These inefficiencies, along with the variables representing risk preferences, are used in the second step to explain adoption of new technologies. This framework is applied to explain adoption decisions of U.S. dairy farmers.