The Allocation of Resources Under Uncertainty
12 Pages Posted: 21 Dec 2006
Date Written: December 2006
We study the effects of uncertainty on the allocation of resources in the standard, static, general equilibrium, two-sector, two-factor model. The elasticity of substitution in production vs that in consumption plays a key role in determining whether uncertainty attracts or repels resources. Risk aversion matters, but to a smaller extent, while factor endowments and factor intensities play a more limited role.
Keywords: Uncertainty, general equilibrium, two sector model
JEL Classification: E2, D5, D8
Suggested Citation: Suggested Citation