Production Risk and Optimal Fertilizer Rates: A Random Coefficient Model

Abstract

Abstract This paper demonstrates that low levels of fertilizer use on rainfed rice in the Philippines cannot be attributed to production risk. A random coefficient model estimated the objective probability distribution of yield. This was incorporated into a utility‐maximization framework to predict that moderately risk‐averse farmers would apply only seven to ten kilograms less than the profit‐maximizing N‐rate. Previous studies have established that risk was not a major impediment to fertilizer use in irrigated areas. This paper extends this conclusion to rainfed rice production in the Philippines.