Production Economics in the Presence of Risk
24 Pages Posted: 14 Sep 2012
Date Written: October 2012
This paper provides an overview of the literature on production under the influence of risk. Various specifications of stochastic production function such as models with additive and multiplicative uncertainty, Just and Pope model, output‐cubical, state‐allocable and state‐general models are discussed. Further, criteria determining optimal producer behaviour are derived for deterministic production technology and for various kinds of state‐contingent technologies such as output‐cubical, state‐specific, state‐allocable and state‐general technologies. Finally, a brief discussion is presented about the drawbacks of each of these specifications of technology.
Keywords: output‐cubical, risk‐neutral, state‐allocable
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