Journal Article

The Forward-Looking Competitive Firm under Uncertainty

Sergio H. Lence and Dermot J. Hayes

in American Journal of Agricultural Economics

Published on behalf of Agricultural and Applied Economics Association

Volume 80, issue 2, pages 303-312
Published in print May 1998 | ISSN: 0002-9092
Published online May 1998 | e-ISSN: 1467-8276 | DOI: https://dx.doi.org/10.2307/1244503
The Forward-Looking Competitive Firm under Uncertainty

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Under realistic circumstances, forward-looking risk-averse firms will produce more than risk-neutral firms, and a mean-preserving spread of the price distribution will increase risk-averse firms' production. These results depend on firms realizing that prices of inputs required for production in subsequent periods are contemporaneously correlated with output prices. This study rationalizes previously unexplained real-world behavior such as the spreading of sales over time and short-run production (or storage) at an expected loss. The present findings imply that empirical work should not assume, nor should it find, a monotonic relationship between output and the level of risk or of risk aversion.

Keywords: forward-looking decision making; production; storage; uncertainty; D210; D810

Journal Article.  0 words. 

Subjects: Information, Knowledge, and Uncertainy ; Production and Organizations

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