Input Choices under Price Uncertainty

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Input Choices under Price Uncertainty

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Ghosal, Vivek

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Vivek Ghosal

Abstract

Theory shows that, depending on risk preferences and technological parameters, price uncertainty may alter firms' choice of capital intensity. This paper presents an empirical analysis of the effect of price uncertainty on firms' choices of capital and labor stocks. Empirical results from a cross-section of manufacturing industries, as well as within-industries over time, show that greater price uncertainty increases an industry's capital-labor ratio. It appears that risk aversion does not dominate firms' decision making. These empirical findings have implications for the analysis of factor demand and productivity, and capacity utilization rates. Copyright 1995 by Oxford University Press.

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Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 33 (1995)
Issue (Month): 1 (January)
Pages: 142-58
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Handle: RePEc:oup:ecinqu:v:33:y:1995:i:1:p:142-58

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Arno Riedl & Frans van Winden, 2003. "Input Versus Output Taxation in an Experimental International Economy," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
Other versions:
- Arno Riedl & Frans van Winden, 2003. "Input versus Output Taxation in an Experimental International Economy," Tinbergen Institute Discussion Papers 03-058/1, Tinbergen Institute. [Downloadable!]
- Riedl, Arno & van Winden, Frans, 2004. "Input versus Output Taxation in an Experimental International Economy," IZA Discussion Papers 1344, Institute for the Study of Labor (IZA). [Downloadable!]
- Arno Riedl & Frans van Winden, 2003. "Input Versus Output Taxation In An Experimental International Economy," Levine's Bibliography 666156000000000277, UCLA Department of Economics. [Downloadable!]
Mark J. Koetse & Henri L.F. de Groot & Raymond J.G.M. Florax, 2006. "The Impact of Uncertainty on Investment: A Meta-Analysis," Tinbergen Institute Discussion Papers 06-060/3, Tinbergen Institute. [Downloadable!]

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