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Flexibility and Risk in the Firm

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  • Zeller, Manfred
  • Robison, Lindon J

Abstract

This paper analyzes the role of use flexibility in investment and production decisions under risk. The underlying relationships between price risk, risk attitudes of the decision maker, and the degree of use flexibility chosen for a firm are derived from an ex ante-ex post-expected value variance model. It is shown that increasing output price risk and risk aversion lead firms to choose a less flexible organization. However, if production input or output constraints are uncertain, the firm may choose a more flexible organization in response to increases in risk and risk aversion. Thus, it is concluded that the preference for flexible investment designs changes as the source of risk changes. Copyright 1992 by Oxford University Press.

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Bibliographic Info

Article provided by Foundation for the European Review of Agricultural Economics in its journal European Review of Agricultural Economics.

Volume (Year): 19 (1992)
Issue (Month): 4 ()
Pages: 473-84

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Handle: RePEc:oup:erevae:v:19:y:1992:i:4:p:473-84

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Cited by:
  1. Weiss, Christoph R., 2001. "On flexibility," Journal of Economic Behavior & Organization, Elsevier, vol. 46(3), pages 347-356, November.
  2. Renner, Swetlana & Pieniadz, Agata, 2008. "Conceptualisation of family farms’ flexibility," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44126, European Association of Agricultural Economists.
  3. Renner, Swetlana & Glauben, Thomas & Hockmann, Heinrich, 2012. "Measurement And Decomposition Of Flexibility Of Multi-Output Firms," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 124865, International Association of Agricultural Economists.

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