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Definition of 'More Systematic Risk' With Some Welfare Implications, A

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  • Hennessy, David A.
  • Lapan, Harvey E.

Abstract

Producers are subject to similar production risks, and so their outputs are likely correlated. Using the entire data-set rather than summary statistics, we study an ordinal definition of systematic risk. For risk-neutral producers in perfect competition, we trace the effects of an increase in systematic risk through to impacts on welfare measures and production decisions. Expected welfare falls under more systematic risk, but either of expected producer surplus or expected consumer surplus may rise. Our definition of systematic risk also has relevance for the incentive to incur R&D expenditures, the benefits of diversity and the gains from risk-sharing.

Suggested Citation

  • Hennessy, David A. & Lapan, Harvey E., 2003. "Definition of 'More Systematic Risk' With Some Welfare Implications, A," Staff General Research Papers Archive 10110, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:10110
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    Cited by:

    1. Meyer, Margaret & Strulovici, Bruno, 2012. "Increasing interdependence of multivariate distributions," Journal of Economic Theory, Elsevier, vol. 147(4), pages 1460-1489.
    2. Hennessy, David A. & Lapan, Harvey E., 2006. "On the nature of certainty equivalent functionals," Journal of Mathematical Economics, Elsevier, vol. 43(1), pages 1-10, December.
    3. Lapan, Harvey E. & Hennessy, David A., 2004. "Cost arrangement and welfare in a multi-product Cournot oligopoly," ISU General Staff Papers 200410230700001202, Iowa State University, Department of Economics.

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