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 mode l of firm behavior that incorporates both risk preferences and ineffic iency into input and output decisions of the firm. The separate effect s of risk aversion and inefficiency on adoption deicisions are estimat ed econometrically. In the first step, we estimate technical inefficie ncy using the stochastic frontier approach. These inefficiencies, alon g with the variables representing risk preferences, are used in the se cond step to explain adoption of new technologies. This framework is a pplied to explain adoption decisions of U.S. dairy farmers.