Two separate bodies of literature on stabilization give radically different results, yet these contradictions have not attracted any attention. The first arises from the neoclassical theory of stabilization and predicts that beneficial stabilization will always attract positive supply response....

The standard approach to modelling production under uncertainty has relied on the concept of the stochastic production function. In the present paper, it is argued that a state‐contingent production model is more flexible and realistic. The model is applied to the problem of drought policy.

The central claim of this paper is that the state-contingent approach provides the best way to think about all problems in the economics of uncertainty, including problems of consumer choice, the theory of the firm, and principal–agent relationships. This claim is illustrated by recent...

In the present paper, risk‐management problems where farmers manage risk both through production decisions and through the use of market‐based and informal risk‐management mechanisms are considered. It is shown that many of these problems share a common structure, and that a unified and...

Agricultural producers typically are faced with risk about the yields they will experience and the prices they will receive. Stabilisation schemes can spread risk and thereby reduce the risk faced by individual producers. The risk-reducing capacity of a scheme and the cost of risk reduction...

It has often been suggested that more stable wool prices would lead to an outward shift in the long-run demand for wool. To assess this claim it is necessary to examine different sources of risk and instability in wool prices and their impact on the risk borne by wool users. A model is presented...

Risk has long been recognised as an important feature of the environment facing farmers. In recent years the von Neumann-Morgenstern expected utility theory has been used to analyse decision making under risk. However, many people behave in a manner inconsistent with the expected utility theory....

This paper presents a unified treatment of the production and financial decisions available to a firm facing frictionless financial markets and a stochastic production technology under minimal assumptions on the firm's stochastic technology and objective function. The specific focus is on...