Separability Of Stochastic Production Decisions From Producer Risk Preferences In The Presence Of Financial Markets

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Separability Of Stochastic Production Decisions From Producer Risk Preferences In The Presence Of Financial Markets

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Chambers, Robert G.
Quiggin, John

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Abstract

This paper presents a unified treatment of the production and financial decisions available to a firm facing frictionless financial markets and a stochastic production technology under minimal assumptions on the firm's stochastic technology and objective function. The specific focus is on separation results for stochastic technologies, that is, on conditions under which the optimal production decision may be determined without regard to the risk preferences of the firm's owners. Necessary and sufficient conditions for separation, which generalize existing results, are presented.

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Paper provided by University of Maryland, Department of Agricultural and Resource Economics in its series Working Papers with number 28561.

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Date of creation: 2002
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Handle: RePEc:ags:umdrwp:28561

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Rahi Rohit, 1995. "Optimal Incomplete Markets with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 65(1), pages 171-197, February. [Downloadable!] (restricted)
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Anderson, Ronald W & Danthine, Jean-Pierre, 1981. "Cross Hedging," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1182-96, December. [Downloadable!] (restricted)

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