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Comparing Optima: Do Simplifying Assumptions Affect Conclusions?

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  • Milgrom, Paul

Abstract

Consider a family of maximization models in which the optimum trades off beneficial and costly effects. Then comparative statics derived under many kinds of simplifying assumptions about the benefits technology are also true for general (convex and nonconvex) technologies. For example, any comparative statics conclusion about investment by a risk-averse decisionmaker under uncertainty that holds when expected returns are described by a general linear function also holds for an arbitrary nonlinear expected return function. Copyright 1994 by University of Chicago Press.

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  • Milgrom, Paul, 1994. "Comparing Optima: Do Simplifying Assumptions Affect Conclusions?," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 607-615, June.
    • Handle: RePEc:ucp:jpolec:v:102:y:1994:i:3:p:607-15
    DOI: 10.1086/261948
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    References listed on IDEAS

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    1. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
    2. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
    3. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-459, June.
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    Cited by:

    1. Edlin, Aaron S. & Shannon, Chris, 1998. "Strict Monotonicity in Comparative Statics," Journal of Economic Theory, Elsevier, vol. 81(1), pages 201-219, July.
    2. Francisco Martínez-Mora & M. Socorro Puy, 2009. "Off-the-peak preferences over government size," Working Papers 2009-9, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
    3. B. H. Strulovici & T. A. Weber, 2008. "Monotone Comparative Statics: Geometric Approach," Journal of Optimization Theory and Applications, Springer, vol. 137(3), pages 641-673, June.
    4. John Quiggin & Robert Chambers, 2007. "Supermodularity and the Comparative Statics of Risk," Theory and Decision, Springer, vol. 62(2), pages 97-117, March.
    5. Jagmohan S. Raju & Abhik Roy, 2000. "Market Information and Firm Performance," Management Science, INFORMS, vol. 46(8), pages 1075-1084, August.
    6. Robert G. Chambers & John Quiggin, 2007. "Dual Approaches to the Analysis of Risk Aversion," Economica, London School of Economics and Political Science, vol. 74(294), pages 189-213, May.
    7. Milgrom, Paul & Roberts, John, 1994. "Complementarities and systems: Understanding japanese economic organization," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 9(1), pages 3-42.
    8. Esther Gal-Or & Anindya Ghose, 2005. "The Economic Incentives for Sharing Security Information," Information Systems Research, INFORMS, vol. 16(2), pages 186-208, June.
    9. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
    10. Milgrom, Paul & Strulovici, Bruno, 2009. "Substitute goods, auctions, and equilibrium," Journal of Economic Theory, Elsevier, vol. 144(1), pages 212-247, January.
    11. Robert Chambers & J. Quiggin, 2008. "Comparative statics for state-contingent technologies," Journal of Economics, Springer, vol. 93(2), pages 203-214, March.
    12. Zenebe Gebreegziabher & Kooten, G. Cornelis van, 2016. "Single versus Multiple Objective(s) Decision Making: An Application to Subsistence Farms in Northern Ethiopia," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 24(2), August.
    13. Quintero Jaramillo, Jose E., 2004. "Liquidity constraints and credit subsidies in auctions," DEE - Working Papers. Business Economics. WB wb040604, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    14. Hermelingmeier, Christian, 2010. "The competitive firm and the role of information about uncertain factor prices," Economic Modelling, Elsevier, vol. 27(2), pages 547-552, March.
    15. Xu, Su Xiu & Lu, Qiang & Huang, George Q. & Zhang, Ting, 2013. "Scope economies, market information, and make-or-buy decision under asymmetric information," International Journal of Production Economics, Elsevier, vol. 145(1), pages 339-348.
    16. Hamister, James W. & Suresh, Nallan C., 2008. "The impact of pricing policy on sales variability in a supermarket retail context," International Journal of Production Economics, Elsevier, vol. 111(2), pages 441-455, February.
    17. Raju, Jagmohan S., 1995. "Theoretical models of sales promotions: Contributions, limitations, and a future research agenda," European Journal of Operational Research, Elsevier, vol. 85(1), pages 1-17, August.
    18. Laslier, Jean-Francois & Trannoy, Alain & Van Der Straeten, Karine, 2003. "Voting under ignorance of job skills of unemployed: the overtaxation bias," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 595-626, March.
    19. Pavel Ševcík, 2012. "Financial Contracts and the Political Economy of Investor Protection," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 163-197, October.
    20. Martínez-Mora, Francisco & Puy, M. Socorro, 2014. "The determinants and electoral consequences of asymmetric preferences," European Journal of Political Economy, Elsevier, vol. 33(C), pages 85-97.
    21. Daron Acemoglu & Martin Kaae Jensen, 2018. "Equilibrium Analysis in the Behavioral Neoclassical Growth Model," NBER Working Papers 25363, National Bureau of Economic Research, Inc.
    22. Friedman, Eric J. & Johnson, Simon, 1997. "Dynamic Monotonicity and Comparative Statics for Real Options," Journal of Economic Theory, Elsevier, vol. 75(1), pages 104-121, July.
    23. George Lady, 2000. "Topics in nonparametric comparative statics and stability," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(1), pages 67-83, February.

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