Risk Structure of Production in Garrison's Model

30 Pages Posted: 24 Jul 2014

See all articles by Nicolas Cachanosky

Nicolas Cachanosky

The University of Texas at El Paso; American Institute for Economic Research; UCEMA Friedman-Hayek Center for the Study of a Free Society

Date Written: June 9, 2014

Abstract

In Young (2012a), an extension of Garrison’s (2001) graphical exposition of Austrian Business Cycle Theory (ABCT) is developed that models the risk structure (as well as the time structure) of production. However, in that extended exposition, there are problems of interpretation involving changes in the area of the “risk triangle.” Despite this, I believe that the arguments for extending ABCT to systematically consider distortions in productive structures beyond the degree of “roundaboutness” are compelling. In this paper, I develop an alternative extension of Garrison’s graphical exposition that incorporates a risk structure. This alternative improves upon Young’s original by (1) having a representation of risk structure that is straightforward and (2) explicitly introducing a risk dimension to the production possibilities. I apply the risk-extended Garrison’s model to the 2007-2009 U.S. recession.

Keywords: risk, Austrian business cycle theory, Garrison's model, subprime crisis

JEL Classification: E32, E50

Suggested Citation

Cachanosky, Nicolas, Risk Structure of Production in Garrison's Model (June 9, 2014). Available at SSRN: https://ssrn.com/abstract=2470109 or http://dx.doi.org/10.2139/ssrn.2470109

Nicolas Cachanosky (Contact Author)

The University of Texas at El Paso

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El Paso, TX 79968
United States

HOME PAGE: http://https://www.utep.edu/

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

UCEMA Friedman-Hayek Center for the Study of a Free Society ( email )

Buenos Aires
Argentina

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