foreign aid tariffs and nontraded private or public goods abstract the possibility of transfer paradoxes or immiserizing growth in tariff ridden small open developing countries with a nontraded goods sector is analysed in four models a short run sector specific factor model a dual economy model capital is mobile between some but not all sectors a long run model factors are mobile between all sectors and a model with public goods several results of the received literature on transfer paradoxes and or immiserizing growth in distorted small open economies are generalized to nontraded private and public goods allowing for intersectoral factor mobility or immobility

recent applications of theory of the firm under uncertainty this paper provides a comprehensive synthesis and analysis of the current and recent empirical implementations of the theory of the firm under uncertainty including multiple sources of uncertainty in so doing it identifies the major estimation obstacles and it offers the future empirical researcher ways to derive simple estimation procedures under multiple sources uncertainty

production under price uncertainty with imperfect time hedging opportunities in futures markets the use of futures markets for the purpose of hedging output subject to price uncertainty has been the focus of several recent studies danthine 4 feder just and schmitz fjs 5 and holthausen 7 argue that the producer s ability to sell output forward in the futures market i e to become a short hedger effectively insulates the optimal production decision from the effects of price uncertainty this result is in marked contrast to the standard treatment of production under price uncertainty e g sandmo 14 and batra and ullah 2 where output in the absence of hedging opportunities is an increasing function of the producer s expectation of the output s future spot price and a decreasing function of his degree of risk aversion and the amount of price risk it is important to note however that this optimality property of futures markets crucially relies upon the implicit assumption that producers are able to obtain perfect time hedges i e the delivery date of the futures contract coincides with the marketing date of the output in actuality of course this circumstance is quite rare due to institutional restrictions i e contracts traded on organized commodity exchanges have standardized maturities usually at three month intervals so that typically producers must either overhedge or underhedge temporally e g hedge output coming to fruition in four months with either a three month or six month futures contract this paper examines the implication of this reality for the optimal production and hedging decisions of producers and establishes that in general the optimality result does not hold in addition a more general model which does not make the

trading on inside information evidence from the share structure reform in china abstract we examine stock trading activities in days before chinese listed firms made public announcement to start share structure reform there is significant evidence that relative to a benchmark period institutional investors bought more event firms shares in the last two trading days prior to announcement randomization tests show significant differences in institutional trading activities between event firms and matched control firms which suggests that some institutions had inside information moreover large trades account for a significant proportion of daily stock price changes in the last 2 days the evidence is consistent with the prediction by holden and subrahmanyam 1992 that when multiple informed investors acquire the same piece of information they will trade aggressively we also find that over the reform period the median share value change of event firms is 6 higher than that of control firms our findings have important implications for enforcement of insider trading regulations in china

optimal investment under ambiguous technology shocks abstract this paper analyzes the behavior of a firm facing an ambiguous technology shock and the effects of the attitude toward ambiguity on optimal capital investment using the smooth ambiguity model of klibanoff et al 2005 although it seems intuitive that an increase in ambiguity aversion always reduces the optimal capital investment this is not necessarily true because the shape of the production function plays a key role in determining the effect under some conditions we show that the optimal amount of capital investment increases decreases in ambiguity aversion if the production function is substitute complement and that this result is counterintuitive when the production function is substitute furthermore our main results hold if we assume the maxmin preferences in ghirardato et al 2004

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

theory of the firm with joint price and output risk and a forward market expected utility maximizing farmers facing just price risk or both price risk and quantity risk behave similarly in the absence of a forward market if forward contracting is possible that is not true because variation in the commodity price affects a farmer s wealth through the value of his futures position the value of his output and through the covariance between price and output this covariance affects a farmer s optimal scale of production his optimal forward position and the interrelationship between the scale of production and forward trading

multiplicative background risk although there has been much attention in recent years on the effects of additive background risks the same is not true for its multiplicative counterpart we consider random wealth of the multiplicative form xy where x and y are statistically independent random variables we assume that x is endogenous to the economic agent but that y is an exogenous and nontradable background risk that represents a type of market incompleteness our main focus is on how the presence of the multiplicative background risk y affects risk taking behavior for decisions on the choice of x we extend the results of gollier and pratt 1996 to characterize conditions on preferences that lead to more cautious behavior

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

the behavior of competitive exporting firms under multiple uncertainty evaluates the effect of exchange rate and commodity price uncertainty from cost and production on a competitive risk averse exporting firm s behavior role of forward future markets in the presence of background uncertainty information on the behavior of the firm when missing markets were introduced

terms of trade and domestic distribution export led growth with abundant labour abstract a general equilibrium macro model is constructed to explore effects of export led growth policies on the terms of trade and the domestic distribution of a developing region with abundant labour this region the south trades with another the north they have different technologies and supplies of factors it is shown that under certain conditions of dualism in the production of goods and of abundant labour supply in the south an increase in the volume of exports from the south may bring about a sustained worsening of the south s terms of trade with the north even if this increase in exports is due to a positive shift in demand from the north this change in the terms of trade is accompanied by a sustained loss of purchasing power of wages within the south these results take place in a walrasian stable market when technologies are more homogenous and labour less abundant the results are reversed increased exports will take place together with improvements in terms of trade and a tendency to equalise factor prices between the regions the results argue for coordination of domestic and international policies with special attention to technologies and labour markets

hedging with price and output uncertainty abstract this paper extends mckinnon s analysis of hedging with price and output uncertainty to the general case where preferences are not necessarily quadratic and probability distribution not necessarily normal

earnings news and small traders an intraday analysis abstract this study separates trading volume into buyer and seller initiated activities and examines the directional volume reaction in small and large trades to different types of earnings news good bad news triggers brief but intense buying selling in the large trades however a persistent period of unusually high buying activity is observed in the small trades irrespective of the news this anomalous proclivity of small traders to buy is robust across firm size trading volume and different earnings expectation models several explanations are discussed although the behavior does not seem fully explained by existing theories

comparative statics effects independent of the utility function when do we act the same way under risk abstract to date comparative statics effects analyzed in the context of expected utility depend on the decision maker s utility function this paper presents a methodology that allows comparative statics effects to be obtained independent of the utility function for a general family of problems in other words we provide a set of conditions under which all decision makers act the same way such a methodology can be applied to relevant problems in the related literature such as the portfolio choice and the competitive firm under price uncertainty with or without the existence of a forward futures market with regards to such specific cases we show and analyze the most relevant effects produced by the variation of two or more parameters regardless of the decision maker s preferences and attitude towards risk some of these effects are illustrated numerically

insider trading legislation and corporate governance this paper analyzes the impact of insider trading legislation on corporate governance in a context where large dominant shareholders can monitor underperforming companies managers have an incentive to give early warnings about adverse developments to dominant shareholders this information is effectively a bribe to induce dominant shareholders to sell their stock and refrain from intervention if insider trading is unregulated dominant shareholders collude with management at the expense of small shareholders the optimal regime forces the company to disclose all material information to the market private contracting between companies and shareholders leads to optimal insider trading regulation only if initial shareholders can enter a binding commitment otherwise large shareholders and managers recontract at the expense of small share holders enforcement also matters european union legislation requires inside information to be precise such a narrow definition creates a grey zone where information is private but cannot be classified as inside information as a result the effectiveness of corporate governance and firm value are reduced regulation in the us that treats shareholders with a stake exceeding 10 as insiders is potentially harmful

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

does insider trading raise market volatility this paper studies the role of insider trading in explaining cross country differences in stock market volatility it introduces a new measure of insider trading the central finding is that countries with more prevalent insider trading have more volatile stock markets even after one controls for liquidity maturity of the market and the volatility of the underlying fundamentals volatility of real output and of monetary and fiscal policies moreover the effect of insider trading is quantitatively significant when compared with the effect of economic fundamentals

economic behavior under temporal uncertainty a considerable amount of research has focused on the effects of uncertainty on economic behavior in the absence of complete risk markets private risk bearing is widely believed to influence economic decisions arrow 1 sandmo 23 chavas 4 dalal 6 and others have investigated the role of uncertainty in resource allocation for example sandmo 23 has proposed a theory of the firm under risk he showed how risk and risk aversion can have a negative effect on production decisions

imperfect competition among informed traders we analyze competition among informed traders in the continuous time kyle 1985 model as foster and viswanathan 1996 do in discrete time we explicitly describe the unique linear equilibrium when signals are imperfectly correlated and confirm the conjecture of holden and subrahmanyam 1992 that there is no linear equilibrium when signals are perfectly correlated one result is that at some date and at all dates thereafter the market would have been more informationally efficient had there been a monopolist informed trader instead of competing traders the relatively large amount of private information remaining near the end of trading causes the market to approach complete illiquidity copyright the american finance association 2000

returns policy new model introduction and consumer welfare abstract this paper investigates how economic outcomes differ for new model introduction between two extreme contracts outright sales contract and returns policy contract with full credit under the outright sales contract we show that the retailer s incentive to introduce a new model can lead to a reduction of consumer welfare when the retailer is moderately risk averse the primary conclusion from this study is that the returns policy contract resolves this conflict between firms and consumers and that the supply chain introduces the new model only when consumer surplus from the new model is higher than that from the old model

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

testing expected utility maximization under price and quantity risk with a heterogeneous panel refutable implications based on the curvature properties of the indirect utility function for the competitive firm operating under uncertainty are extended to the case of both price and quantity uncertainty using unit roots and cointegration tests for heterogeneous panels a model of us agricultural production is developed based on the time series properties of a panel of state level data most refutable hypotheses under output price and output quantity risk are not rejected but symmetry conditions implied by a twice continuously differentiable indirect utility function are rejected the same test conclusions are obtained from a traditional model that presumes stationarity in all variables

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 derived demand with hedging cost uncertainty in the futures markets this study explores the significance of production technology and other parameters on the employment of inputs and hedging the paper establishes an explicit relationship between the risk as well as prices parameters and the derived demand production and hedging the authors find that the futures price relative to the expected spot price affects the demand for production factors additionally the presence of basis risk determines the impact of prices and risk parameters on the derived demand for inputs production technology is instrumental in fixing the size of the change in the demand given a change in the model s parameters copyright 1992 by royal economic society

event studies in economics and finance the event study is an important research tool in economics and finance the goal of an event study is to measure the effects of an economic event on the value of firms event study methods exploit the fact that given rationality in the marketplace the effects of an event will be reflected immediately in security prices thus the impact can be measured by examining security prices surrounding the event in this paper event study methods are described including some of the potential complications an example is included to illustrate the approach

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

equilibrium in a futures market normal backwardation the hypothesis that futures prices normally lie below expected future spot prices was justified by keynes 6 and hicks 2 by the contention that speculators while risk averse are less so than hedgers consequently hedgers pay speculators to bear that hedgers risk houthakker 5 supported this view arguing that according to all available data short hedging and conversely long speculation is the more common type working 9 favored the view that futures prices are unbiased predictors of future spot prices if this is true hedgers are not on average paying to reduce their risk nor are speculators on average earning a premium for assuming risk risk averse speculators will participate in such a market only if there are nonhomogeneous beliefs regarding the expected spot price the level of futures prices is important not only because it determines the cost of hedging but also because it influences production decisions in light of the competing views in the literature of both the level of futures prices and the factors which determine them we will analyze these issues in this paper to do so we employ a model based on incomplete markets in certainty claims in this and other respects identified later the model parallels existing futures markets in agricultural commodities the analysis shows in the absence of speculators that the relative magnitudes of the futures price pf and the expected future spot price e p are determined by the business transactions of and markets available to those economic units with a commercial or production interest in the commodity this defines the conditions under which there is a role for speculators even if they have the same degree of risk aversion and share the expectations of other market participants thus neither differences in degrees of risk

risk aversion and yield uncertainty in duality models of production a mean variance approach a duality model of production is developed that endogenizes stochastic output decisions under risk aversion the model incorporates both yield and price uncertainty and nonlinear mean variance risk preferences this permits modeling of the firm s expected output supply and input demand decisions under risk and also in principle the firm s output variance decisions the duality model is tractable for empirical research

graciela chichilnisky s model of north south trade abstract the model of the effects of north south trade set out by chichilnisky in the april 1981 issue of the journal of development economics is shown to contain a number of errors the model is presented anew in this note after corrections are made one can still obtain results similar in spirit to some of those chichilnisky tried to derive although the interpretation of the cause of the results must be substantially altered in particular it is shown that for appropriate parameter values in this model one will find that it is possible for an increase in the demand for the good the north exports to lead to 1 a worsening of the terms of trade for the south 2 a worsening of the distribution of factor incomes in the north and in the south 3 a reduction in the total export revenues of the south and 4 at the same time an increase in the physical volume of the south s exports the cause is in essence a shift in world demand from the good the south exports to the good the north exports which leads to a terms of trade loss for the south income effects following from the terms of trade loss then lead to a situation where the south s own demand for its export good falls by more than its supply thus leading to the preverse effect of an increase in the volume of its exports the paper also considers the model of chichilnisky and cole 1978 this model is similar to that of chichilnisky 1981 and is used to examine the same issues but is closed in a different way it is shown that this second model may give similar results as the first but that also a quite different set of results is now possible closure is therefore shown to play a key role

insider trading in a rational expectations economy it is often argued that efficiency considerations require society to freely permit insider trading in this article an opposing efficiency argument is formalized the model incorporates an investment stage followed by a trading stage if outsiders expect insiders to take advantage of them in trading outsiders will reduce their investment the insiders loss from this diminished investor confidence may more than offset their trading gains consequently a prohibition on insider trading may effect a pareto improvement insiders are made better off if they can precommit not to trade on their privileged information govemment regulation accomplishes exactly this jel 022 026 313 the traditional rationale articulated for insider trading regulation and other securities law is that such rules promote confidence in markets indeed president franklin d roosevelt justified the first major u s securities legislation by saying it should give impetus to honest dealing in securities and thereby bring back public confidence similar language is still invoked half a century later in connection with enforcement efforts against insider trading and in proposals for tightened stock

a note on the theory of the firm under multiple uncertainties abstract we develop a dynamic continuous time theory of the competitive firm under multiple correlated uncertainties output price uncertainty and output uncertainty as an example in doing so we completely generalize and extend the previous one period comparative statics results the marginal impact of each parameter on optimal output particularly we relax the assumption of the statistical independence between the risks and the restrictions on the coefficient of absolute relative risk aversion furthermore we generally show the impact of one risk on the aversion to another moreover we show the role of the factor of correlation between risks on the decisions of the firm

stealth trading which traders trades move stock prices usingaudit trail data for a sample of nyse firms we show that medium size trades are associated with a disproportionately large cumulative stock price change relative to their proportion of all trades and volume this result is consistent with the predictions of barclay and warner s 1993 stealth tradinghypothesis we find that the source of this disproportionately large cumulative price impact of medium size trades is trades initiated by institutions this result is robust to various sensitivity checks our findings appear to confirm street lore that institutions are informed traders 2001 elsevier science s a all rights reserved

systematic liquidity and the funding liquidity hypothesis abstract in order to reconcile weak evidence of supply side determinants of commonality in liquidity in previous studies we examine commonality in liquidity in china over the period 1995 2012 consistent with supply side explanations we find that market declines and market volatility increase liquidity commonality to identify the direct relationship between the supply side determinants and commonality in liquidity we provide two specific tests and show that an increase in market participants has a negative effect on liquidity commonality while the split share structure reform in 2005 2007 that results in a large increase in shares supply has a positive impact on liquidity commonality finally we find that commonality in liquidity also has a real impact on the economy

an examination on the cost efficiency of the banking industry under multiple output prices uncertainty this article formulates a behavioural model of profit maximization which explicitly incorporates both multiple output prices risk and safety first practice this theoretical model is specifically suitable for investigating financial institutions whose output prices frequently encounter a variety of risks such as loan defaults arrears the sample banks are empirically found to be highly risk averse furthermore risk preferences exert little effect on the technical efficiency estimates whereas the same estimates obtained by the standard fixed effect model under certainty tend to be overestimated evidence is found that a specialized bank offering a single product with a larger scale of production will be preferable in an uncertain atmosphere

futures hedging under price basis and production risk we consider the hedging problem of a firm that has three sources of risk price basis and yield uncertainty an exact solution for the optimal futures hedge is derived under the assumption that the three random variables are jointly normally distributed and that utility is of the cara type unlike the mean variance approximation applied in previous research we show that the optimal hedge does depend on risk attitudes even when the agent perceives the futures price as being unbiased the theoretical results are applied empirically to the problem of hedging soybean production in iowa the exact solution relying on cara and normality is compared with numerical solutions under lognormal distributions and crra utility

cross sectional dependence and problems in inference in market based accounting research this paper provides a framework and some empirical evidence to evaluate the seriousness of problems in inference that arise in stockreturn based studies when the data are cross sectionally dependent the study is motivated on the grounds that statistical procedures designed to address such problems are often infeasible and even when they can be implemented they sometimes introduce other more serious difficulties thus researchers have frequently adopted an approach that ignores the cross sectional dependence e g ordinary least squares ols the objective of this paper is to help identify the contexts in which ignoring the dependence would lead to serious misstatement of significance levels cross sectional dependence in stock returns data is likely to exist when at least some of the returns are sampled from common time periods this would be the case in all studies of the reaction of stock prices to a

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

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

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

long lived private information and imperfect competition we develop a multi period auction model in which multiple privately informed agents strategically exploit their long lived information we show that such traders compete aggressively and cause most of their common private information to be revealed very rapidly in the limit as the interval between auctions approaches zero market depth becomes infinite and all private information is revealed immediately these results are in contrast to those of kyle 1985 in which the monopolistic informed trader causes his information to be incorporated into prices gradually and when the interval between auctions is vanishingly small market depth is constant over time fama 1970 defines a strong form efficient market as one in which security prices fully reflect all available information including both publicly and privately held information in a pioneering and influential article kyle 1985 develops a model in which a single privately informed trader with long lived information optimally exploits his monopoly power over time kyle s 1985 main results are i the informed trader trades in a gradual manner so that his information is incorporated into prices at a slow almost linear rate and ii when auctions are held continuously the depth of the market is constant over time however kyle s 1985 assumption of a single informed trader is strong in the sense that in actual financial markets it is reasonable to expect that at least a few players will have access to private information and will trade in the knowledge that they will face competition with other informed agents in the market 1 we develop a multi period auction model in which multiple strategic informed traders optimally exploit their long lived informational advantage we thus explore the restrictiveness of kyle s assumption of a single informed trader and also examine

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

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

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

technological uncertainty and the theory of the firm several recent articles 1 6 have generalized the theory of the firm to incorporate price uncertainty and risk aversion it is now well known that the risk averse entrepreneur will select that level of output at which the expected price equals the marginal cost plus the marginal risk premium leland 5 provides a similar generalization given demand uncertainty however in each case the assumption of a well specified technology is maintained this paper complements and generalizes the earlier work on the theory of the firm by investigating the effect which technological uncertainty has on the firm s optimal production decision like the earlier work on the theory of the firm we show that the firm selects the level of input at which the expected marginal productivity equals the factor price plus the marginal risk premium unlike the earlier work we show that the sign of the marginal risk premium is not always positive and that it depends on the structure of the firm s technology we show that the distinction between price and technological uncertainty is important because each can lead to different implications for firm behavior like its predecessors the model of the firm presented here assumes a single ownerentrepreneur who makes the production decision we modify the baron and sandmo models by assuming that the entrepreneur knows the cost of each production decision but not the output as a result the entrepreneur s decision yields a random variable denoting output and a linear transformation of it denoting profit the entrepreneur chooses the random variable denoting profit to maximize his expected utility there are at least three distinct ways in which our notion of technological uncertainty may be interpreted first the entrepreneur may not know the location of the production surface in this case each production decision yields a random output an increase in the

production uncertainty and the input decision of the competitive firm facing the futures market abstract production uncertainty is introduced into the model of the competitive firm facing the futures market the firm s input decision is shown to be highly sensitive to the nature of the production uncertainty

north south trade and exported led policies abstract an earlier paper in this journal chichilnisky 1981 formulated a model of north south trade where the south exports a labor intensive commodity in exchange for industrial goods the paper studied moves to new equilibria with higher levels of exports of the south and of industrial demand in the north it was established that with abundant labor and technological dualism such moves lead to more exports but no lower terms of trade consumption and real wages in the south this occurs within walrasian stable and perfectly competitive markets sufficient conditions were also given for the south to improve its terms of trade real wages and consumption through an export expansion this paper comments on several other papers written on these results generalizes the earlier propositions and extends them to a larger class of economies which export labor intensive products but need not have abundant labor it gives a generalization of the earlier results on uniqueness and stability of the equilibria and reports also on recent econometric tests for sri lanka and the u k and numerical simulations of the model

dynamic decisions under risk application of ito stochastic control in agriculture in agricultural economics most studies of dynamic decisions under risk have been empirical with less emphasis on theory in finance resource economics and general economics however ito stochastic control is popular for theoretical work optimal decisions can be characterized using the powerful ito stochastic calculus this paper describes the assumptions and methods of ito control constructs a dynamic model of agricultural decisions under risk and illustrates with four examples

terms of trade and domestic distribution a comment abstract in a recent issue of this journal chichilnisky 1981 develops a north south two good static model to explore the implications of export led growth policies for the south s terms of trade and income distribution it is my contention that most of the results of this paper are invalid as stated furthermore i claim that the problems with these results are due in good part to mistakes when dealing with the elementary properties of the model namely existence uniqueness and stability of equilibria the first part of this note reviews these properties and the main results of chichilnisky 1981 are discussed in the final part