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Overlooked results on the competitive firm under output price risk: Alternative sufficient conditions for downward sloping factor demand curves

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  • Watt, Richard

Abstract

The existing literature on the competitive firm under output price risk has concluded that the demand for labor (and any other factor) will be a decreasing function of the price of that factor if the firm’s utility function for profit satisfies decreasing absolute risk aversion. Here I add two alternative sufficient conditions, both related to the size of relative risk aversion.

Suggested Citation

  • Watt, Richard, 2020. "Overlooked results on the competitive firm under output price risk: Alternative sufficient conditions for downward sloping factor demand curves," Economics Letters, Elsevier, vol. 196(C).
    • Handle: RePEc:eee:ecolet:v:196:y:2020:i:c:s0165176520303104
    DOI: 10.1016/j.econlet.2020.109507
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    References listed on IDEAS

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    1. Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-548, May/June.
    2. Baron, David P, 1970. "Price Uncertainty, Utility, and Industry Equilibrium in Pure Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 463-480, October.
    3. Hartman, Richard, 1975. "Competitive Firm and the Theory of Input Demand under Price Uncertainty: Comment," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1289-1290, December.
    4. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    5. Katz, Eliakim, 1983. "Relative Risk Aversion in Comparative Statics," American Economic Review, American Economic Association, vol. 73(3), pages 452-453, June.
    6. Leland, Hayne E, 1972. "Theory of the Firm Facing Uncertain Demand," American Economic Review, American Economic Association, vol. 62(3), pages 278-291, June.
    7. Hartman, Richard, 1976. "Factor Demand with Output Price Uncertainty," American Economic Review, American Economic Association, vol. 66(4), pages 675-681, September.
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    Cited by:

    1. Bonilla, Claudio A. & Fica, Diego, 2022. "Loss aversion and risky entrepreneurship," Finance Research Letters, Elsevier, vol. 48(C).

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    More about this item

    Keywords

    Price risk; Competitive firms; Labor demand;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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