Endogenous Fixprices and Sticky Price Adjustment of Risk-averse Firms
AbstractA risk-averse price-setting firm which knows the quantity demanded at the status quo price but has imperfect information otherwise may choose not to change it although an otherwise identical risk-neutral firm would do so, provided the variance of the firm's subjective probability distribution over quantities demanded as a function of price displays a kink at the status quo. This is equivalent to risk aversion of order one. When no such endogenous fixprice exists, the size of price adjustment still tends to zero as risk aversion tends to infinity, and to any arbitrarily small menu cost there exists a degree of risk aversion so that the firm will not adjust.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 6302.
Date of creation: 1997
Date of revision:
fixed prices; price adjustment; risk aversion; menu cost;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dreze, Jacques H., 1979. "Demand estimation, risk-aversion and sticky prices," Economics Letters, Elsevier, vol. 4(1), pages 1-6.
- Grossman, Sanford J & Hart, Oliver D, 1981. "Implicit Contracts, Moral Hazard, and Unemployment," American Economic Review, American Economic Association, vol. 71(2), pages 301-07, May.
- Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 823-38, Supp..
- Uzi Segal & Avia Spivak, 1988.
"First Order Versus Second Order Risk Aversion,"
UCLA Economics Working Papers
540, UCLA Department of Economics.
- Laurence Ball & David Romer, 1987.
"Sticky Prices as Coordination Failure,"
NBER Working Papers
2327, National Bureau of Economic Research, Inc.
- Allen, Franklin, 1988. "A Theory of Price Rigidities when Quality is Unobservable," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 139-51, January.
- Dennis W. Carlton, 1986.
"The Rigidity of Prices,"
NBER Working Papers
1813, National Bureau of Economic Research, Inc.
- Frank, Jeff, 1990. "Monopolistic Competition, Risk Aversion, and Equilibrium Recessions," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 921-38, November.
- Deaton, A. S., 1975. "The measurement of income and price elasticities," European Economic Review, Elsevier, vol. 6(3), pages 261-273, July.
- Bignami, Fernando & Colombo, Luca & Weinrich, Gerd, 2004. "Complex business cycles and recurrent unemployment in a non-Walrasian macroeconomic model," Journal of Economic Behavior & Organization, Elsevier, vol. 53(2), pages 173-191, February.
- Luca Colombo and Gerd Weinrich, 2001.
"The Phillips Curve as a Long-Run Phenomenon in a Macroeconomic Model with Complex Dynamics,"
Computing in Economics and Finance 2001
13, Society for Computational Economics.
- Colombo, Luca & Weinrich, Gerd, 2003. "The Phillips curve as a long-run phenomenon in a macroeconomic model with complex dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 28(1), pages 1-26, October.
- Gerd Weinrich & Luca Colombo, 2001. "The Phillips Curve as a Long-Run Phenomenon in a Macroeconomic Model with Complex Dynamics," CeNDEF Workshop Papers, January 2001 1B.3, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Luca Colombo & G. Weinrich & F. Bignami, 2000. "A Dynamic Non-Tatonnement Macroeconomic Model With Stochastic Rationing," Computing in Economics and Finance 2000 198, Society for Computational Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.