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A Supply-Response Model Under Invariant Risk Preferences

  • Robert Chambers

    ()

    (University of Maryland)

  • Margarita Genius

    ()

    (Department of Economics, University of Crete, Greece)

  • Vangelis Tzouvelekas

    ()

    (Department of Economics, University of Crete, Greece)

In this article we first develop a theoretically consistent supply-response model for producers with invariant preferences facing price risk, and then we empirically apply the model for a group of Cretan olive-oil producers. For doing so, we estimate a Generalized Leontief cost function and we use the price distribution historically faced by individual farmers to induce three di erent representations of price risk corresponding to the second, third and fourth lp norms. These risk measures are combined with the estimated cost-structure to provide three separate representations of the ecient frontier for the representative producer. Empirical results suggest that, regardless of risk measure used, all farmers curtail production in managing price risk.

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Paper provided by University of Crete, Department of Economics in its series Working Papers with number 1209.

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Length: 36 pages
Date of creation: 04 Nov 2012
Date of revision:
Handle: RePEc:crt:wpaper:1209
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  1. Mark J Machina, 1982. ""Expected Utility" Analysis without the Independence Axiom," Levine's Working Paper Archive 7650, David K. Levine.
  2. Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-48, May/June.
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  9. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
  10. Chambers, Robert G & Grant, Simon & Polak, Ben & Quiggin, John, 2011. "A Two-Parameter Model of Dispersion Aversion," Risk and Sustainable Management Group Working Papers 151196, University of Queensland, School of Economics.
  11. 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.
  12. Ball, V Eldon, et al, 1993. "The Stock of Capital in European Community Agriculture," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 20(4), pages 437-50.
  13. Kanas, Angelos & Genius, Margarita, 2005. "Regime (non)stationarity in the US/UK real exchange rate," Economics Letters, Elsevier, vol. 87(3), pages 407-413, June.
  14. Elie Appelbaum & Eliakim Katz, 1986. "Transfer seeking and avoidance: On the full social costs of rent seeking," Public Choice, Springer, vol. 48(2), pages 175-181, January.
  15. Benoit Bellone, 2005. "Classical Estimation of Multivariate Markov-Switching Models using MSVARlib," Econometrics 0508017, EconWPA.
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