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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

Abstract

Separation results, as they are usually understood, refer to conditions under which a firm's production decisions are independent of its risk attitudes. Well-understood situations where separation occurs typically include those where technically feasible production opportunities are replicable in financial markets. This paper gives necessary and sufficient conditions for separation that go beyond these well-understood spanning conditions. To do so, we present 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 about the firm's technology and objective function.

Suggested Citation

  • Chambers, Robert G. & Quiggin, John, 2009. "Separability of stochastic production decisions from producer risk preferences in the presence of financial markets," Journal of Mathematical Economics, Elsevier, vol. 45(11), pages 730-737, December.
  • Handle: RePEc:eee:mateco:v:45:y:2009:i:11:p:730-737
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    References listed on IDEAS

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    1. Chambers, Robert G. & Quiggin, John, 2008. "Narrowing the no-arbitrage bounds," Journal of Mathematical Economics, Elsevier, vol. 44(1), pages 1-14, January.
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    9. Ross, Stephen A, 1987. "Arbitrage and Martingales with Taxation," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 371-393, April.
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    Cited by:

    1. Chambers, Robert G. & Quiggin, John, 2008. "Narrowing the no-arbitrage bounds," Journal of Mathematical Economics, Elsevier, vol. 44(1), pages 1-14, January.
    2. John Quiggin & Robert G. Chambers, 2006. "The state-contingent approach to production under uncertainty ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(2), pages 153-169, June.
    3. Voica, Daniel C., 2014. "Are Subsidies Decoupled from Production in the Presence of Incomplete Financial Markets?," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169788, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Production under uncertainty Financial markets Separation Spanning;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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