Empirical Analysis under Additive/Multiplicative Output Uncertainty
AbstractEmpirical studies dealing with price uncertainty are abundant; for example, Arshanapalli and Gupta (1996) derived estimating equations by applying uncertainty analogues of Hotelling's lemma and Roy's identity to the indirect expected utility function (see Pope, 1980, and, Dalal 1990). However, their method is not applicable to the models with price and output uncertainty. Few empirical studies included both price and output uncertainty and focused on hedging. For example, Rolfo (1980) computed the ratio of hedge to expected output for cocoa producers. Lapan and Moschini (1994) calculated the same ratio for soya bean farmers. Assuming simultaneous price and output uncertainty, this paper empirically estimate the most two common forms of output risk: additive risk and multiplicative risk (see Honda,1983, and, Grant 1985). Then it empirically determines which form is more suitable. The theory does not provide a conclusive criteria for the choice between additive risk and multiplicative risk (see Honda,1983). Therefore, the choice should be empirical.
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 Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0301.
Date of creation: Feb 2003
Date of revision:
Contact details of provider:
Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462438
Web page: http://crieff.wordpress.com/
More information through EDIRC
Cost uncertainty; forward market; futures market; hedging; input price uncertainty;
Other versions of this item:
- Moawia Alghalith, 2003. "Empirical Analysis under Additive/Multiplicitave Output Uncertainty," Discussion Paper Series, Department of Economics 200301, Department of Economics, University of St. Andrews.
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
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.:
- Rolfo, Jacques, 1980. "Optimal Hedging under Price and Quantity Uncertainty: The Case of a Cocoa Producer," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 100-116, February.
- Arshanapalli, Bala G. & Gupta, Omprakash K., 1996. "Optimal hedging under output price uncertainty," European Journal of Operational Research, Elsevier, vol. 95(3), pages 522-536, December.
- Lapan, Harvey E. & Moschini, GianCarlo, 1994. "Futures Hedging Under Price, Basis and Production Risk," Staff General Research Papers 10041, Iowa State University, Department of Economics.
- Viaene, Jean-Marie & Zilcha, Itzhak, 1998. "The Behavior of Competitive Exporting Firms under Multiple Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 591-609, August.
- Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-35, May.
- Pope, Rulon D, 1980. "The Generalized Envelope Theorem and Price Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 75-86, February.
- Losq, Etienne, 1982. "Hedging with price and output uncertainty," Economics Letters, Elsevier, vol. 10(1-2), pages 65-70.
- Honda, Yuzo, 1983. "Production uncertainty and the input decision of the competitive firm facing the futures market," Economics Letters, Elsevier, vol. 11(1-2), pages 87-92.
- Satyanarayan, Sudhakar, 1999. "Econometric tests of firm decision making under dual sources of uncertainty," Journal of Economics and Business, Elsevier, vol. 51(4), pages 315-325, July.
- Dalal, Ardeshir, 1990. "Symmetry Restrictions in the Analysis of the Competitive Firm under Price Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 207-11, February.
- Alghalith, Moawia & Dalal, Ardeshir, 2009. "The choice between multiplicative and additive production uncertainty," Economic Modelling, Elsevier, vol. 26(5), pages 1129-1133, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bram Boskamp).
If references are entirely missing, you can add them using this form.