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First and Second Degree Transformations and Comparative Statics under Uncertainty

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  • Ormiston, Michael B

Abstract

The purpose of this paper is to investigate the direction of change in the optimal value of the choice variable following a deterministic transformation of the underlying random variable. Here, the author considers transformations representing either first or second degree stochastically dominant shifts. Several theorems are presented giving conditions on the economic model and risk-taking characteristics of the decisionmaker that are sufficient to obtain unambiguous comparative statics results for arbitrary first degree stochastically dominant and second degree stochastically dominant transformations as well as for simple first degree stochastically dominant and second degree stochastically dominant transformations. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Ormiston, Michael B, 1992. "First and Second Degree Transformations and Comparative Statics under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 33-44, February.
  • Handle: RePEc:ier:iecrev:v:33:y:1992:i:1:p:33-44
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    Cited by:

    1. Snow, Arthur, 2003. "Substitution and income effects for increases in risk," Economics Letters, Elsevier, vol. 79(3), pages 313-317, June.
    2. Hennessy, David A. & Babcock, Bruce A., 1998. "Information, flexibility, and value added1," Information Economics and Policy, Elsevier, vol. 10(4), pages 431-449, December.
    3. Machnes, Yaffa, 1995. "Deductible insurance and production," Insurance: Mathematics and Economics, Elsevier, vol. 17(2), pages 119-123, October.
    4. Bucher, Monika & Hauck, Achim & Neyer, Ulrike, 2014. "Frictions in the interbank market and uncertain liquidity needs: Implications for monetary policy implementation," DICE Discussion Papers 134, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Mitusch, Kay & Nautz, Dieter, 2001. "Interest rate and liquidity risk management and the European money supply process," Journal of Banking & Finance, Elsevier, vol. 25(11), pages 2089-2101, November.
    6. Horowitz, I. & Thompson, P., 1995. "The sophisticated decision maker: All work and no pay?," Omega, Elsevier, vol. 23(1), pages 1-11, February.
    7. Hennessy, David A., 1999. "Capacity choice in a two-stage problem under uncertainty," Economics Letters, Elsevier, vol. 65(2), pages 177-182, November.
    8. Nautz, Dieter, 1998. "Banks' demand for reserves when future monetary policy is uncertain," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 161-183, June.
    9. Hennessy, David A., 1998. "Risk Market Innovations and Choice," International Review of Economics & Finance, Elsevier, vol. 7(3), pages 331-341.
    10. Gollier, Christian & Schlesinger, Harris, 1996. "Portfolio choice under noisy asset returns," Economics Letters, Elsevier, vol. 53(1), pages 47-51, October.

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