This paper develops an analytically tractable approach to the comparative statics of output subsidies for firms, with monotonic preferences over costs and returns, that face price and production uncertainty. We derive comparative static results for input demand and output supply.

In this article, we present one of the first real-world empirical applications of state-contingent production theory. Our state-contingent behavioral model allows us to analyze production under both inefficiency and uncertainty without regard to the nature of producer risk preferences. Using...

Questions relating to the allocation and management of risk have played a central role in the development of the National Water Initiative, particularly as it has applied to the Murray-Darling Basin. The central issues of efficiency and equity in allocations are best understood by considering...

In this article we model production technology in a state-contingent framework. Our model analyzes production under uncertainty without being explicit about the nature of producer risk preferences. In our model producers’ risk preferences are captured by the risk-neutral probabilities they...

In a stochastic decision environment, differences in information can lead rational decision makers facing the same stochastic technology and the same markets to make different production choices. Efficiency and productivity measurement in such a setting can be seriously and systematically biased...

We present a definition of increasing uncertainty, in which an elementary increase in the uncertainty of any act corresponds to the addition of an `elementary bet' that increases consumption by a fixed amount in (relatively) `good' states and decreases consumption by a fixed (and possibly...

This paper presents a dual representation of firm-level and market-level equilibrium behavior for a sole proprietorship economy with competitive and frictionless financial markets and stochastic production opportunities in a two-period setting. The dual equilibrium model is used to state...

Quiggin and Chambers have introduced the notion of invariant preferences, and shown that the only invariant expected-utility functionals are those associated with a quadratic utility function. This note identifies the class of preferences which simultaneously satisfy invariance, two-fund...

Separation results, as they are usually understood, refer to conditions under which a firm's production decisions are independent of its risk attitudes. Well-understood situations where separation occurs typically include those where technically feasible production opportunities are replicable...

In this paper, we consider the relationship between supermodularity and risk aversion. We show that supermodularity of the certainty equivalent implies that the certainty equivalent of any random variable is less than its mean. We also derive conditions under which supermodularity of the...