The Effect of Risk Aversion on Total Factor Productivity in Agronomy Subsector

Productivity improvement is an essential approach to increase production without using more resources. Due to the agriculture is fraught with risks and losses, farmers' behavior is influenced by their risk attitudes and adoption of policies to increase productivity requires adequate knowledge of individual’s decision making mechanism. In present study examined the effect of risk attitudes on total factor productivity for 210 farms of Sarab County that were selected with stratified sampling method. Risk aversion coefficient and Total Factor Productivity were calculated respectively within the Quadratic Risk programming and Fare Primont index. The results of the TFP index show that during the period of 1392-97, the potato had the highest TFP and the rained Barley had the lowest TFP among the studied products. Average Relative Risk aversion coefficient and proportional Risk Premium were 2.9 and 1735000 Rials respectively; this indicates that most farmers in the region are more Risk aversion. The results of the study showed that risk aversion had a negative effect on Total Factor Productivity, therefore reducing the severity of risk and loss and improving risk management skills increase total factor productivity.