IDEAS home Printed from https://ideas.repec.org/p/qld/uqcepa/51.html
   My bibliography  Save this paper

Production Under Uncertainty: A Simulation Study

Author

Listed:
  • S.Shankar

    ()

  • C.J. O’Donnell

    () (CEPA - School of Economics, The University of Queensland)

  • John Quiggin

    () (CEPA - School of Economics, The University of Queensland)

Abstract

In this article we model production technology in a state-contingent framework. Our model analyzes production under uncertainty without regard to the nature of producer risk preferences. In our model producers? risk preferences are captured by the risk-neutral probabilities they assign to the different states of nature. Using a state-general state-contingent specification of technology we show that rational producers who encounter the same stochastic technology can make significantly different production choices. Further, we develop an econometric methodology to estimate the risk-neutral probabilities and the parameters of stochastic technology when there are two states of nature and only one of which is observed. Finally, we simulate data based on our state-general state-contingent specification of technology. Biased estimates of the technology parameters are obtained when we apply conventional ordinary least squares (OLS) estimator on the simulated data.

Suggested Citation

  • S.Shankar & C.J. O’Donnell & John Quiggin, 2010. "Production Under Uncertainty: A Simulation Study," CEPA Working Papers Series WP052010, School of Economics, University of Queensland, Australia.
  • Handle: RePEc:qld:uqcepa:51
    as

    Download full text from publisher

    File URL: http://www.uq.edu.au/economics/cepa/docs/WP/WP052010.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Powell, Alan A. & Gruen, Fred H.G., 1967. "The Estimation Of Production Frontiers: The Australian Livestock/Cereals Complex," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 11(01), June.
    2. Christopher O’Donnell & Robert Chambers & John Quiggin, 2010. "Efficiency analysis in the presence of uncertainty," Journal of Productivity Analysis, Springer, pages 1-17.
    3. Christopher O’Donnell & Robert Chambers & John Quiggin, 2010. "Efficiency analysis in the presence of uncertainty," Journal of Productivity Analysis, Springer, pages 1-17.
    4. Jesus Pastor & C. Lovell & Juan Aparicio, 2012. "Families of linear efficiency programs based on Debreu’s loss function," Journal of Productivity Analysis, Springer, pages 109-120.
    5. C. J. O'Donnell & W. E. Griffiths, 2006. "Estimating State-Contingent Production Frontiers," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 249-266.
    6. Rasmussen, Svend, 2003. "Criteria for optimal production under uncertainty. The state-contingent approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(4), December.
    7. O'Donnell, Christopher J. & Shankar, Sriram, 2009. "Estimating State-Allocable Production Technologies When There are Two States of Nature and State Allocations of Inputs are Unobserved," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 50898, Australian Agricultural and Resource Economics Society.
    8. Jean-Paul Chavas, 2008. "A Cost Approach to Economic Analysis Under State-Contingent Production Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(2), pages 435-466.
    9. Chambers,Robert G. & Quiggin,John, 2000. "Uncertainty, Production, Choice, and Agency," Cambridge Books, Cambridge University Press, number 9780521622448, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Peter Slade & Getu Hailu, 2016. "Efficiency and regulation: a comparison of dairy farms in Ontario and New York State," Journal of Productivity Analysis, Springer, pages 103-115.
    2. Neumann, Anne & Nieswand, Maria & Schubert, Torben, 2016. "Estimating Alternative Technology Sets in Nonparametric Efficiency Analysis: Restriction Tests for Panel and Clustered Data," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 35-51.

    More about this item

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:qld:uqcepa:51. 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: (SOE IT). General contact details of provider: http://edirc.repec.org/data/decuqau.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.