The Effects of Alternative Producer Risk Specification and Information on Elevator Quality Discounts for Wheat

This Study attempts to explain why more wheat elevators were not becoming early adopters by paying quality-adjusted prices. Since inconsistencies have been observed between expected utility and individuals` behavior, this research considers the case where producers` preferences can be more appropriately modeled by prospect theory, and whether such preferences can explain more of elevators` reluctance to pay quality-adjusted prices. A simulation model is used to measure the effects of risk-averse producers (in both expected utility and prospect theory frameworks) and limited quality information on profits that can be earned by an elevator that pays quality-adjusted prices. Results indicate that prospect theory helps to explain part, but not all, of the reluctance to pay quality-adjusted prices.