effects of budgetary policies in open economies the role of intertemporal consumption substitution an economy s optimal response to temporary and anticipated future changes in government spending is examined in the context of a two country model which highlights the role of the elasticity of int

government debt capital accumulation and the terms of trade in a model of interdependent economies this paper extends diamond s overlapping generations model into a two good two country setting to analyze the impact of an increase in domestic government debt on the terms of trade the current account and capital accumulation at home and abroad it is found that while the direction of change in the terms of trade is indeterminate in the short run for stability it must agree with that in the steady state which in turn is dependent on the initial debt status in trade of the home country the higher level of government debt leads unambigously to lower levels of capital stocks however

non traded goods and the international transmission of fiscal policy abstract this paper looks at the effect of non traded goods on the international transmission of fiscal policy intertemporal movements in the price of non traded goods affect real interest rates differentially between countries the real interest rate effects of a fiscal expansion depend crucially upon both the composition of fiscal spending and the intertemporal elasticity of substitution with a high intertemporal elasticity of substitution in consumption a temporary fiscal expansion on non traded goods will lead consumer real interest rates to move in opposite directions between countries

international fiscal policy transmission the paper examines international transmission of stochastic fiscal policy disturbances in a two country general equilibrium framework with possible excess supply equilibria with underutilization o

fiscal spending the terms of trade and real interest rates this paper investigates the international movements in real interest rates and investment spending in response to a temporary fiscal expansion in one country it is shown that fiscal expansion may lead investment spending to be negatively correlated across countries this is because real interest rates relevant for investment purposes may move asymmetrically between countries in response to an expansion in fiscal spending the crucial factors which determine whether or not this occurs are a a transfer criterion which depends upon the spending propensities of the government relative to those of private consumers and b the intertemporal elasticity of substitution in consumption

economic welfare evaluations for producers under uncertainty the validity of producer and consumer surplus measures of firm welfare under risk is examined under constant absolute risk aversion and output price uncertainty only these measures are an exact measure of firm welfare as defined by compensating variation equivalent variation or the change in the certainty equivalent under decreasing absolute risk aversion qualitative comparisons of various measures are discussed for example producer s surplus as measured by the area above the uncompensated risk averse supply curve overstates the compensating variation of a change in expected price of output procedures for calculating firm welfare under production uncertainty and a variety of economic environments are proposed generally these procedures are applicable only when absolute risk aversion is constant

macroeconomic policy transmission and international interdependence a svar application to brazil and us economic policy transmission between trade partners has been analyzed over different contexts in the literature depending on real or nominal frictions the results indicate possible beggar thy neighbor effects for policies given international trade and need for coordinating policies the baseline model is corsetti and pesenti 2001 of macroeconomic interdependence the theoretical proposition suggests that a no anticipated economic policy of exchange rate depreciation creates a beggar thyself effect yet many economies have engaged in this policy to enhance exports and improve welfare here fiscal policy transmissions over brazilian economic aggregates are investigated considering brazil as home and us as foreign country the problem is specified in a structural var vector autoregression model taking granger causality tests and impulse response analysis as econometric applications the results indicate that expansionary fiscal policy in us has a beggar thy neighbor effect for the brazilian economy in the long run the policy transmission mechanism relies on the terms of trade in addition real money balances are affected by foreign fiscal policy affecting the efficiency of domestic monetary policy 2013 national association of postgraduate centers in economics anpec production and hosting by elsevier b v all rights reserved jel classification f41 f42

do state trading exporters distort trade abstract in this paper we analyse the trade distorting effects of state trading enterprises stes which exist in some exporting countries because of these potential effects several countries have raised the issue of state enterprises in the doha round negotiations in the wto the belief is that stes in certain developed countries have trade effects which are equivalent to an export subsidy stes also exist in developing countries though since the aim of government policy may differ from the developed country case the trade distortion may be equivalent to an export tax we present a theoretical model that is sufficiently general to allow us to consider the case of exporting stes in developed and developing economies the model is calibrated with data on two examples of stes one typical of an ste in a developed country the other typical of an ste in a developing economy in each case we allow for differences in the nature of the ste s pay off function the overall conclusion is that stes do distort trade and the trade distortion effect is potentially significant

estimation of moments and production decisions under uncertainty the purpose of this paper is to examine production decisions under output price uncertainty using a nonparametric estimation technique to estimate the first four moments of the unknown price distribution and applying duality we provide a simple empirical framework for the analysis of supply and demand decisions under price uncertainty the model is used to examine the importance of higher moments in the firm s production decisions and to investigate underlying attitudes toward risk

fiscal policy and the exchange rate in the big seven transmission of u s government spending shocks by paul masson and adrian blundell wignall

monopolistic competition credibility and the output costs of disinflation programs an analysis of price controls abstract brazil argentina and israel all used price controls as part of disinflation programs in 1985 1986 in each case they were intended to break an inertial component of inflation this paper focuses on the interaction between lack of credibility of government monetary policy announcements and the price setting behavior of forward looking firms we show that this interaction can lead to inertia extending well beyond the price setting period lack of credibility is then shown to lead to output losses during a disinflation program the paper analyses asset price behavior during disinflation programs with and without price controls and the influence of credibility problems finally we show that if past government policy has any information content about future government policy cheating on current announcements of tight policy buys current employment gains during the price control period at the cost of higher inflation afterwards sustaining low inflation after the price control period thus requires restrictive monetary policy during the price control period

the terms of trade and the international coordination of fiscal policy this paper develops an example of a noncooperative game between fiscal authorities in two countries the key strategic link between countries is the terms of trade an equilibrium without cooperation is characterized by excessive tax rates and public spending levels in each country the outcome is analogous to the nash equilibrium of the static optimal tarif game in trade theory but in this model there is also a dynamic distortion caused by noncooperative behaviour this dynamic distortion depresses capital accumulation and reduces the equilibrium capital stock in each country numerical examples suggest a significant welfare benefit of cooperation

international debt and world business fluctuations abstract the international transmission of real productivity disturbances is examined in an optimizing model with two countries each inhabited by an infinitely lived representative consumer producer we analyze the dynamics of output consumption investment interest rates and net external debt foreign productivity shocks can have positive or negative impacts on domestic output and international debt depending on the intertemporal distribution of the shocks transient foreign shocks are shown to be positively transmitted and lead to increased domestic indebtedness while permanent foreign shocks are negatively transmitted and lead to a decline in domestic indebtedness

revenue neutral tax policies under price uncertainty the firm s response to revenue neutral taxation is investigated under price uncertainty revenue neutral policies adjust simultaneously the marginal tax rate and the level of exemptions while keeping expected tax receipts constant nonincreasing absolute risk aversion is sufficient to sign the firm s response a reduction in the marginal rate causes the firm to contract output implications are established for the equilibrium level of treasury receipts

government deficits private investment and the current account an intertemporal disequilibrium analysis this paper uses a model with full intertemporal optimization and fischer gray type short run real wage rigidities to demonstrate effects of deficit spending in different employment regimes this study attempts to bring the two strands of short run aggregate demand effects and certain intertemporal aspects together it analyses fiscal policy in the context of a model with full intertemporal optimization underlying private behavior which allows the paper to deal with the intertemporal aspects but it also explicitly incorporates the possibility of short run labour and goods market disequilibrium caused by fischer 1977 gray 1978 type contract based real wage rigidities and within period downward price inflexibility prices are however assumed to be flexible upward in a departure of the standard disequilibrium literature in section 2 the basic model is presented the paper uses a two period full optimization set up where wages and prices are set at the beginning of each period using all available information fiscal policy effects under keynesian unemployment are analyzed in section 3 while section 4 looks at the case of classical unemployment section 5 concludes

the real exchange rate the capital stock and fiscal policy abstract this paper studies the joint determination of aggregate supply the real exchange rate and the current account in response to changes in government spending in a model where there is no uncertainty in the aggregate but where individuals are uncertain about their lives duration international capital mobility fixes the steady state capital stock and aggregate supply in a small country whereas in a large country the steady state capital stock is endogenous an increase in government spending is more likely to generate a real exchange rate depreciation in a small country since the loss of wealth associated with cumulated current account deficits does not increase rest of the world spending in the case of a large country current account deficits are wealth transfers to the rest of the world and increase foreign spending thus the normal long run response is an increase in the relative price of domestic output

symmetry restrictions in the analysis of the competitive firm under price uncertainty this paper shows that if the production function is appropriately restricted some symmetry reciprocity results that hold for a competitive firm under certainty continue to hold under price uncertainty for any strictly concave utility function in contrast earlier analyses have established these symmetry relations by imposing restrictions on the utility function the present analysis uses the envelope theorem the indirect utility function and the duality between production and cost copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

international status seeking trade and growth leadership we study a two country endogenous growth model where the utility of agents in developing countries is affected by consumption gaps with advanced economies international status seeking tends to revert growth differentials in favour of the developing country preferences with endogenous status desire generate convergence in growth rates in the presence of structural gaps and convergence in income levels if productivity differences disappear this process is driven by declining terms of trade and faster capital accumulation of the status seeker the model predictions are shown to be consistent with the stylized facts that characterized the growth performance of east asian economies

the effects of product price uncertainty on the owner managed firm theory and evidence in this paper we extend the theory of the owner managed firm to incorporate product price uncertainty and we present an empirical test of the model s predictions under product price uncertainty the trade off between leisure and profit faced by an owner manager is combined with the trade off between surety and risk bearing faced by an entrepreneur the firm s owner bears the uninsurable and undiversifiable risk about profit caused by product price uncertainty and as manager supplies the firm a unique labor factor the model predicts that the substitution effect of an increase in risk on the quantity supplied by the firm is negative the income effect of risk reinforces the substitution effect if the entrepreneur s labor supply has a positive wage elasticity but runs counter to and could dominate the substitution effect if the wage elasticity of labor supply for the entrepreneur is sufficiently negative unlike previous research on price uncertainty and the firm this paper presents an empirical test of the model s predictions using data on physicians in solo practice our empirical analysis indicates that although wage elasticities of labor supply for the physician entrepreneurs are negative greater risk leads to a reduction in output these results suggest that the substitution effect is dominant in determining the response to product price uncertainty for the owner managed firms in our sample frank knight 12 gave prominence to the risk bearing role of the entrepreneur who as residual claimant bears the risk associated with a firm s revenue tibor scitovsky 21 later emphasized a different aspect of entrepreneurial activity the trade off confronted by an ownermanager between consumption of leisure and pursuit of profit both models of the entrepreneur are relevant to predicting the behavior of an owner managed firm operating in a risky environment the entrepreneur in such a firm must choose between consuming leisure and supplying labor which provides an uncertain return the random residual of revenue net of payments to other factors

the trade distorting effect of state trading enterprises in importing countries abstract this paper focuses on the potential trade distorting effect of state trading enterprises an issue that is likely to receive greater attention than hitherto in the context of the current agricultural negotiations in the wto although state trading enterprises can arise in both exporting and importing countries the emphasis here is on the importing country case our results show that state trading enterprises do distort trade though the nature of the distortion i e whether it is equivalent to an import tariff or import subsidy depends on the nature of exclusive rights bestowed by government on the state enterprise we also consider state trading enterprises in both developed and developing economies the main difference being the nature of the government s pay off function the theoretical framework allows us to derive the tariff equivalent effects for various types of stes the results suggesting that the trade distorting effect is likely to vary considerably dependent on the type of ste that arises in particular circumstances

international coordination of fiscal policy in limiting economies we examine the limiting behavior of cooperative and noncooperative fiscal policies as countries market power goes to zero we show that these policies converge if countries raise revenues through lump sum taxation however if there are unremovable domestic distortions such as distorting taxes there can be gains to coordination even when a single country s policy cannot affect world prices these results differ from the received wisdom in the optimal tariff literature the key distinction is that contrary to the tariff literature the spending decisions of governments are explicitly modeled

competitive industry equilibrium under uncertainty and free entry this paper investigates the properties of industry equilibrium under price uncertainty given free entry and exit for any form of risk averse behavior it is shown that an increase in demand uncertainty as measured by a mean preserving spread increases mean output price and reduces output of firms in long run equilibrium

the short run shutdown decision when output price and initial wealth are random abstract this paper extends the research of hori 1983 and chavas 1985 by investigating the short run shutdown decision of the competitive firm under output price risk when initial wealth is random central to this endeavor are the results of doherty and schlesinger 1986 and doherty et al 1987 concerning global and local risk premia under multiple sources of risk using a local risk premium two novel and intuitively pleasing results are reported here the reservation price of the shutdown decision varies a according to the diversification of the decision maker s cash flows and b if the decision maker exhibits dara then according to the depth of decision maker s pockets

assessing the distortionary impact of state trading in china state trading is a common feature in the management of imports and exports of agricultural products and it has been a long standing feature of china s agricultural trade regime while the use of state trading was modified by china s accession to the wto it remains a dominant feature for some commodities even though there have been recent attempts to diminish its importance in this article we review the role that the state trading enterprise ste china national cereals oils and foodstuffs import and export company cofco continues to play in the importing and exporting of some agricultural commodities we then review the economic theory that has been developed to measure the tariff equivalent of importing stes finally we apply that theory through a calibration exercise to measure the tariff equivalent of cofco in china s import market for wheat the distortionary impact of cofco depends on the bias in government policy toward agriculture the competitiveness of the domestic procurement market and also the number of firms that are allocated licenses to import alongside cofco

capital accumulation and the current account in a two country model abstract this paper examines the joint determination of international debt and capital accumulation in a two country model national rates of time preference are endogenous adjusting along an optimal path to come into equality with one another in the steady state the characteristics of short run current account dynamics are crucially linked to world capital accumulation and to a country s long run net external asset position steady state creditor countries tend to have current account surpluses during episodes of world output growth and vice versa for debtor countries this gives rise to possible non monotonic adjustment in the current account and consumption

production decisions under joint price and production uncertainty abstract while production decisions in the presence of price uncertainty have been extensively studied this is not so for the case in which the level of production is itself uncertain in this paper we provide a decision analysis under multiplicative production uncertainty both with and without price uncertainty we depict equilibrium and obtain comparative statics results with the aid of a diagram based on the difference between expected price and marginal cost comparative statics results are obtained for the model with production uncertainty alone and also for simultaneous price and production uncertainty including two special cases we first derive results based on the arrow pratt coefficients of risk aversion and then supplement these with the ross measure of relative risk aversion since this proves useful in the presence of multiple sources of uncertainty we find that increases in risk both price and production or input prices reduce expected output however expected output supply is an increasing function of expected price only for low levels of risk aversion and in general the relationship is ambiguous

an optimizing analysis of the effects of world interest disturbances on the open economy term structure of interest rates abstract this paper studies the effects of world interest rate disturbances on the real domestic term structure of interest rates an intertemporal optimizing representative agent framework with variable employment and endogenous terms of trade is developed the economy faces an external borrowing constraint the adjustment of the short and long term rates as well as the discount bond yield curve is distinguished with the long rate and the yield curve derived recursively from the short both permanent and temporary world interest shocks are considered a notable result is that the yield curve exhibits relative maxima and minima for temporary disturbances

optimal hedging under output price uncertainty abstract this paper provides a theoretical and empirical analysis of optimal hedging under output price uncertainty the theoretical analysis is facilitated by exploiting the duality between production and cost while the empirical implementation uses the envelope theorem and the indirect expected utility function empirically estimable equations are derived by approximating the indirect expected utility function by a taylor series approximation the model is tested by using live cattle data as output while using prices of corn soybeans and the feeder cattle as inputs the results support the theoretical predictions and the evidence shows that live cattle farmers exhibit decreasing absolute risk aversion

supply response under proportional profits taxation a striking result in the theory of the competitive firm under certainty is the proposition that a proportional profits tax with full offsets for losses will have no impact on optimal output this result does not apply under uncertainty it is shown that under constant or increasing returns to scale a proportional profits tax will yield an unambiguous expansion in output the same result is shown to hold for the more general rank dependent expected utility rdeu model

the current account and the optimal government debt abstract in this paper we analyze the optimal response of the current account and the government debt to real disturbances permanent and temporary lumpsum taxes are not feasible and the government income is raised according to the ramsey rule for optimum taxation we show that permanent disturbances have no effects on either the private or the government current account if initially there are no deficits starting off from the same initial situation both the private sector and the government develop a deficit on current account in response to a temporary disturbance

resource management under production and output price uncertainty implications for environmental policy various environmental policies have been proposed to control agricultural runoff of nutrients and pesticides the impacts of these policies on input use are complicated because of the various sources of uncertainty farmers face and the precise nature of farmers risk attitude a risk averse farmer s response to changed profit input and output taxes under output price and production uncertainty is examined the impact of these policies on input use depends on the form of production uncertainty risk input relationships risk attitudes and degrees of output price and production uncertainty these results have implications for the design and implementation of environmental and other production related policies copyright 2002 oxford university press

are commercial fishers risk lovers fishers are risk averse according to most empirical studies while expected utility theory predicts risk neutrality even for sizable stakes we test this prediction using data from a stated choice experiment with swedish commercial fishers our results show that only 48 of the fishers can be broadly characterized as risk neutral while 26 are modestly risk averse and 26 are strongly riskaverse fishers are more risk neutral the higher the fraction of their household s income comes from fishing sensitivity testing implies that modest stake decisions like a few days of fishing are not influenced by wealth level

theory of the firm under the threat of input supply interruption economists have been intrigued by the behavior of firms under different types of risk and uncertainty relatively recently there has been a particular interest in the theory of production under input uncertainty perhaps as a reflection of the energy supply disruptions experienced in the 1970s nevertheless this literature concentrates on the firm s production decisions when the uncertainty stems from stochastic input deliveries or from the production process itself this paper extends the stochastic input analysis to the monopolistic firm operating under the threat of input supply interruption turnovsky 8 presents some results pertaining to production decisions under input supply uncertainty he examines the risk neutral competitive firm s response to a randomly delivered input allowing the firm to reject excess order deliveries martin 6 examines the competitive firm s optimal short run response to stochastic deliveries where the entire input deliveries cannot exceed orders in these frameworks random deliveries can stem from internal sources such as machine failures or external sources such as unanticipated input market shocks and transportation breakdowns both studies demonstrate that the uncertainty induces a stochastic input ordering bias by the firm while turnovsky 8 finds that the existence of uncertainty in one input supply will not alter the optimal order of the nonstochastic input this is the so called input independence result martin 6 finds that the effect of the uncertainty on the nonstochastic input orders will depend upon the inputs relationship in production in this paper as in turnovsky s and martin s papers the supply of one perishable input is stochastic unlike the existing models however the ex post input supply under the threat of interruption is dichotomous either interruption occurs in which case none of the input is delivered to the firm or interruption does not occur in which case the entire input order is delivered to the firm also the existing work by turnovsky 8 and martin 6 concentrates on the competitive firm whereas this paper focuses on the monopolistic firm s behavior under factor supply uncertainty 2

the gains from fiscal cooperation in the two commodity real trade model abstract this paper analyzes the gains from fiscal cooperation within the context of the standard two commodity real trade model it shows how the adjustment in the terms of trade is the critical factor in determining the effects of moving from a noncooperative equilibrium in general a noncooperative equilibrium leads to an overexpansion of government expenditure on the import good relative to a cooperative equilibrium the specific example of a logarithmic economy is also considered the paper discusses further the welfare effects resulting from the formation of a coalition of two countries among three

on the theory of the competitive firm under uncertainty when initial wealth is random since sandmo s seminal paper on the theory of the competitive firm under output price uncertainty there has been considerable research on this topic 2 5 6 10 11 14 in all these studies it is assumed that in the absence of complete contingent markets output price risk is the only source of uncertainty for the firm however this may not be a realistic assumption in particular as argued by kihlstrom et al 7 it appears reasonable to consider the case where some of the initial wealth of the firm is held in risky assets in that case initial wealth is uncertain and should be modelled as a random variable the objective of this paper is to investigate the introduction of random initial wealth in sandmo s theory of the firm under price uncertainty in sandmo s model a number of important comparative static results e g the conditions under which the supply function is upward sloping 14 69 or under which increased price uncertainty reduces supply 5 depends critically on the sign of a particular expression stated in lemma 2 in ishii 5 while sandmo 14 69 shows this expression is non negative under arrow pratt decreasing absolute risk aversion it can be verified that his proof no longer holds when initial wealth is random therefore the comparative static analysis conducted by sandmo 14 batra and ullah 2 and ishii 5 is no longer valid and gives ambiguous results under initial wealth uncertainty the reason is that the arrow pratt measures of risk aversion 1 12 are too weak for making comparisons in situations where there is more than one source of uncertainty 13 then what can be deduced from the theory of the competitive firm in the realistic case where both initial wealth and output price are uncertain we will show here that meaningful results on the behavior of the competitiv firm under uncertainty can be obtained provided that the arrow pratt measures of risk aversion 1 12 are replaced by the ross measures of risk aversion 13 in particular a comparative static analysis of the production decisions using ross characterization of risk behavior is presented a number of new results are derived on the properties of risk responsive supply and input demand functions under both price and initial wealth uncertainty

some stronger measures of risk aversion in the small and the large with applications the arrow pratt measures of risk aversion for von neumann morgenstern utility functions have become workhorses for analyzing problems in the microeconomics of uncertainty they have been used to characterize the qualitative properties of demand in insurance and asset markets to examine the properties of risk taking in taxation models and to study the interaction between risk and life cycle savings problems to name just a few applications equally importantly they have generated the linear risk tolerance class of utility functions which has provided canonical examples in such diverse areas as portfolio theory and the theory of teams despite these successes there have been a number of areas for which the results have been weaker than hoped it is natural to use the risk aversion measures to compare the behavior of individuals in risky choice situations for example consider the individual portfolio choice problem in a two asset world with a riskless asset and a risky asset if individual a has a uniformly higher arrow pratt coefficient of risk aversion than individual b then b will always choose a portfolio combination with more wealth invested in the risky asset but suppose that both assets are risky now there is no obvious sense in which the more risk averse individual can be said to hold a less risky portfolio but it seems strange that such a simple alteration should destroy the analytics which support the basic intuition similarly consider the basic insurance problem if one individual a is more risk averse than another b in the arrow pratt sense it follows that a will pay a larger premium to insure against a random loss than will b typically though an individual evaluates partial rather than total insurance that is only some gambles can be insured against and others must be retained in this case even when the gambles which are retained are independent from those which are insured it is no longer true that the individual whose arrow pratt measure of risk aversion is higher will pay a larger insurance premium the situation is no better when we consider comparative statics exercises for a single individual decreasing absolute risk aversion in the sense of arrow and

dynamics of a floating exchange rate regime we study the full equilibrium dynamics of a two country world economy with a floating exchange rate traded and nontraded goods and explicit modeling of the use of money the resulting exchange rate equation depends on several details of the economic structure such as the supply structure and propensities to spend on various goods although real exchange rate movements have the usual association with the current account the ordinary exchange rate may appreciate or depreciate when there are deficits on current account even when the quantities of money do not change deviations from purchasing power parity and the fisher equation are shown to be the rule rather than the exception

fiscal policies and the integrated world stock market abstract the paper develops a two country stochastic model of an integrated world stock market in order to address issues concerning the effects of tax and spending policies on savings asset portfolios and stock market valuations general conditions for government finance neutrality under uncertainty are derived and the characteristics of the international transmission of uncertain future spending policies are spelled out they are shown to depend precisely on a transfer problem criterion involving the government and the private sector propensities to spend in different states of nature and on the cross country correlations between shocks to productivity and public spending

constrained choices under risk there has recently been a revival of interest in the implications of rationing for economic theory extending the work of samuelson 21 tobin and houthakker 24 and pollak 16 recent papers by bruno 3 howard 8 latham 13 and neary and roberts 15 have explored the theory of producer and consumer behavior under quantity rationing these developments have provided useful hypotheses in the investigation of economic behavior for example they have stimulated a reexamination of macroeconomic disequilibrium however previous work seems to have focused on economic models in the absence of uncertainty yet given that production decisions are often made before output prices are known and in the absence of complete contingent markets sandmo 22 batra and ullah 2 and others have developed the theory of the competitive firm under price uncertainty under the expected utility maximization hypothesis such a theory provides useful information about the influence of changing economic conditions or of risk behavior on production decisions but because of the presence of short run adjustment costs leading to short run input fixity or because of regulatory or institutional constraints quantity rationing often influences production decisions in order to evaluate how rationing influences such decisions there is a need to develop a conceptual model of constrained choices of the firm under risk the objective of this paper is to explore the implications of quantity rationing in the context of production theory under price uncertainty by introducing risk and risk behavior it extends the classical analysis of quantity constrained production decisions 3 21 the implications of quantity constraints for risk responsive choice functions are derived using the concepts of compensated choice functions and virtual prices it is shown that expected price effects can be decomposed into substitution effects and wealth effects the substitution effects measure the effects of a change in expected price on the compensated choice functions the compensation being made through a change in initial wealth holding expected utility constant the wealth effects characterize risk preferences since a non zero wealth effect reflects a departure from an arrow pratt constant absolute risk aversion utility function the influence of rationing on the properties of ordinary as well as compensated choice functions is analyzed in details by deriving the implications of quantity constraints for firm behavior under uncertainty the paper presents a number of useful results concerning the influence of risk or technology on economic behavior under rationing for example a