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Flexibility and Risk in the Firm

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  • Zeller, Manfred
  • Robison, Lindon J

Abstract

This paper analyzes the role of use flexibility in investment and production decisions under risk. The underlying relationships between price risk, risk attitudes of the decision maker, and the degree of use flexibility chosen for a firm are derived from an ex ante-ex post-expected value variance model. It is shown that increasing output price risk and risk aversion lead firms to choose a less flexible organization. However, if production input or output constraints are uncertain, the firm may choose a more flexible organization in response to increases in risk and risk aversion. Thus, it is concluded that the preference for flexible investment designs changes as the source of risk changes. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Zeller, Manfred & Robison, Lindon J, 1992. "Flexibility and Risk in the Firm," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 19(4), pages 473-484.
    • Handle: RePEc:oup:erevae:v:19:y:1992:i:4:p:473-84
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    1. repec:zbw:iamost:199947 is not listed on IDEAS
    2. Weiss, Christoph R., 2001. "On flexibility," Journal of Economic Behavior & Organization, Elsevier, vol. 46(3), pages 347-356, November.
      • Weiss, Christoph R. & Briglauer, Wolfgang, 2000. "On flexibility," FE Working Papers 0003, Christian-Albrechts-University of Kiel, Department of Food Economics and Consumption Studies.
    3. Swetlana Renner & Thomas Glauben & Heinrich Hockmann, 2014. "Measurement and decomposition of flexibility of multi-output firms," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 41(5), pages 745-773.
    4. Renner, Swetlana, 2014. "Flexibilität von Unternehmen: Eine theoretische und empirische Analyse," Studies on the Agricultural and Food Sector in Transition Economies 199947, Institute of Agricultural Development in Transition Economies (IAMO).
    5. Renner, Swetlana & Pieniadz, Agata, 2008. "Conceptualisation of family farms’ flexibility," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44126, European Association of Agricultural Economists.
    6. Swetlana Renner & Thomas Glauben & Heinrich Hockmann & Pierre Ouellette, 2015. "Primal and dual multi-output flexibility measures," Journal of Productivity Analysis, Springer, vol. 44(2), pages 127-136, October.
    7. Tsakiridis, Andreas & Breen, James & O'Donoghue, Cathal & Hanrahan, Kevin & Wallace, Michael & Crosson, Paul, 2016. "Flexibility of beef suckler cow systems under varying calf retention strategies," 90th Annual Conference, April 4-6, 2016, Warwick University, Coventry, UK 236289, Agricultural Economics Society.
    8. Renner, Swetlana, 2014. "Flexibilität in Unternehmen: Eine theoretische und empirische Analyse," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 75, number 75.

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