IDEAS home Printed from https://ideas.repec.org/a/rje/bellje/v3y1972iautumnp509-530.html
   My bibliography  Save this article

Perfect Competition and Optimal Production Decisions under Uncertainty

Author

Listed:
  • Eugene F. Fama

Abstract

This paper studies production decisions by firms in a capital market where decision-making by consumer-investors and the structure of equilibrium expected returns on securities are according to a two-parameter (mean-dispersion) model. An attempt is made to distinguish clearly questions concerned with the conditions required for perfect competition among firms as issuers of securities from questions concerned with whether value maximizing production decisions by perfectly competitive firms are Pareto optimal. The two major findings are as follows. First, there are natural externalities in the production decisions of firms that could in principle prevent the capital market from being perfectly competitive. But it is argued that the available empirical evidence is consistent with the conditions required for perfect competition. Second, given a market that satisfies the conditions required for perfect competition, natural external economies in the production decisions of firms can prevent the allocations achieved by perfectly competitive, value maximizing firms from being Pareto optimal. That is, a competitive equilibrium need not be Pareto optimal

Suggested Citation

  • Eugene F. Fama, 1972. "Perfect Competition and Optimal Production Decisions under Uncertainty," Bell Journal of Economics, The RAND Corporation, vol. 3(2), pages 509-530, Autumn.
  • Handle: RePEc:rje:bellje:v:3:y:1972:i:autumn:p:509-530
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0005-8556%28197223%293%3A2%3C509%3APCAOPD%3E2.0.CO%3B2-6&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thomas Delcey, 2019. "Samuelson vs Fama on the Efficient Market Hypothesis: The Point of View of Expertise [Samuelson vs Fama sur l’efficience informationnelle des marchés financiers : le point de vue de l’expertise]," Post-Print hal-01618347, HAL.
    2. William J. Marshall & Jess B. Yawitz & Edward Greenberg, 1984. "Incentives for Diversification and the Structure of the Conglomerate Firm," NBER Working Papers 1280, National Bureau of Economic Research, Inc.
    3. Tom Arnold & Richard Shockley, 2010. "Real Options Analysis and the Assumptions of Corporate Finance: A Non-Technical Review," Multinational Finance Journal, Multinational Finance Journal, vol. 14(1-2), pages 29-71, March-Jun.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rje:bellje:v:3:y:1972:i:autumn:p:509-530. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: https://www.rje.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.