Firm behaviour under uncertainty: a simple parametric model. (1st May 2012)

• Record Type: Journal Article
• Authors: Shankar, Sriram
• Is Part Of: Australian journal of agricultural and resource economics. Volume 57:Number 1(2013:Jan.)
• Page Start: 141
• Page End: 151
• Publication Date: 2012-05-01
• Subjects: Agriculture -- Economic aspects -- Periodicals; Agriculture -- Environmental aspects -- Periodicals; Natural resources -- Periodicals; Agriculture -- Economic aspects -- Australia -- Periodicals; Natural resources -- Australia -- Periodicals; 338.1
• DOI: 10.1111/j.1467-8489.2012.00592.x
• Languages: English
• ISSNs: 1364-985X

Abstract

<abstract abstract-type="main" xml:lang="en"> <title> <x xml:space="preserve">Abstract</x> </title> <p>In this paper, we model production technology in a state‐contingent framework. We assume that all the firms use the same stochastic technology, but they may have different risk attitudes and information sets, and <italic>ex post</italic> they may operate in different production environments. Firms maximise <italic>ex ante</italic> their preference function subject to a stochastic technology constraint; in other words, they are assumed to act rationally, thereby leaving no room for either technical or allocative inefficiency. We provide a simple parametric functional form to represent the state‐contingent technology. Using simple numerical examples, we illustrate how optimal input–output choices are dramatically affected when firms have different preferences and information sets. Thus, we show that the observed disparateness of production choices among different firms can actually be attributed to the stochastic nature of the decision environment.</p> </abstract>