The Firm Under Uncertainty with General Risk-Averse Preferences: A State-Contingent Approach |
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Authors: | Quiggin John Chambers Robert G. |
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Affiliation: | (1) Australian National University, Australia;(2) Dept. of Agricultural and Resource Economics, University of Maryland, 2200 Symons Hall, College Park, MD, 20742 |
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Abstract: | This paper summarizes and synthesizes recent developments in the state-contingent theory of production under uncertainty presented by Chambers and Quiggin (2000) with a particular focus on the case of generalized expected utility preferences. The problem of the risk-averse firm under price and production uncertainty is analyzed using a state-contingent production technology and general risk-averse preferences. The concept of an efficient frontier, which identifies all potentially optimal production plans for weakly risk-averse decisionmakers, is introduced and used to develop comparative static results. For constant absolute risky technologies, the efficient frontier is shown to correspond to a unique isocost contour. |
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Keywords: | risk production state-contingent technology generalized expected utility |
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