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The state-contingent approach to production under uncertainty

Author

Listed:
  • John Quiggin

    () (Department of Economics, University of Queensland)

  • Robert G. Chambers

    () (Dept of Agricultural and Resource Economics, University of Maryland, College Park)

Abstract

Chambers and Quiggin, claim that the state-contingent approach provides the best way to think about all problems in the economics of un- certainty, including problems of consumer choice, the theory of the firm, and principal?agent relationships. The purpose of this paper is to restate this claim, and to defend it in the light of recent developments in, and applications of, the state-contingent approach.

Suggested Citation

  • John Quiggin & Robert G. Chambers, "undated". "The state-contingent approach to production under uncertainty," Risk & Uncertainty Working Papers WPR05_1, Risk and Sustainable Management Group, University of Queensland.
  • Handle: RePEc:rsm:riskun:r05_1
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    File URL: http://www.uq.edu.au/rsmg/WP/WPR05_1.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Chambers, Robert G & Quiggin, John, 1997. "Separation and Hedging Results with State-Contingent Production," Economica, London School of Economics and Political Science, vol. 64(254), pages 187-209, May.
    3. Shogren, Jason F. & Crocker, Thomas D., 1999. "Risk and Its Consequences," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 44-51, January.
    4. 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.
    5. Adamson, David & Mallawaarachchi, Thilak & Quiggin, John, 2004. "Modelling basin level allocation of water in the Murray Darling Basin in a world of uncertainty," Risk and Sustainable Management Group Working Papers 149844, University of Queensland, School of Economics.
    6. Robert G. Chambers & John Quiggin, 2002. "Optimal Producer Behavior in the Presence of Area-Yield Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 320-334.
    7. Chambers, Robert G. & Quiggin, John C., 2004. "Technological and financial approaches to risk management in agriculture: an integrate approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), June.
    8. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February.
    9. Chambers, Robert G. & Quiggin, John, 2009. "Separability of stochastic production decisions from producer risk preferences in the presence of financial markets," Journal of Mathematical Economics, Elsevier, vol. 45(11), pages 730-737, December.
    10. Chambers, Robert G. & Quiggin, John, 2005. "Cost minimization and asset pricing," Risk and Sustainable Management Group Working Papers 151170, University of Queensland, School of Economics.
    11. Quiggin, John, 1991. "Comparative Statics for Rank-Dependent Expected Utility Theory," Journal of Risk and Uncertainty, Springer, vol. 4(4), pages 339-350, December.
    12. Chambers,Robert G. & Quiggin,John, 2000. "Uncertainty, Production, Choice, and Agency," Cambridge Books, Cambridge University Press, number 9780521785235, April.
    13. Christopher O’Donnell & Robert Chambers & John Quiggin, 2010. "Efficiency analysis in the presence of uncertainty," Journal of Productivity Analysis, Springer, vol. 33(1), pages 1-17, February.
    14. Robert Chambers & Rolf Färe & John Quiggin, 2004. "Jointly radial and translation homothetic preferences: generalized constant risk aversion," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(3), pages 689-699, March.
    15. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    16. Robert G. Chambers & John Quiggin, 1998. "Cost Functions and Duality for Stochastic Technologies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 288-295.
    17. Quiggin, John & Chambers, Robert G, 1998. "Risk Premiums and Benefit Measures for Generalized-Expected-Utility Theories," Journal of Risk and Uncertainty, Springer, vol. 17(2), pages 121-137, November.
    18. John Quiggin & Robert G. Chambers, 2004. "Drought policy: a graphical analysis," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), pages 225-251, June.
    19. Maria Racionero & John Quiggin, 2006. "Fixed Wages and Bonuses in Agency Contracts: The Case of a Continuous State Space," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(5), pages 761-777, December.
    20. Simon Grant & John Quiggin, 2002. "The Risk Premium for Equity: Implications for the Proposed Diversification of the Social Security Fund," American Economic Review, American Economic Association, vol. 92(4), pages 1104-1115, September.
    21. Robert G. Chambers & John Quiggin, 2003. "Price Stabilization and the Risk-Averse Firm," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(2), pages 336-347.
    22. Quiggin, John & Chambers, R.G.Robert G., 2004. "Invariant risk attitudes," Journal of Economic Theory, Elsevier, vol. 117(1), pages 96-118, July.
    23. Chambers, Robert G. & Quiggin, John, 2003. "Indirect certainty equivalents for the firm facing price and production uncertainty," Economics Letters, Elsevier, vol. 78(3), pages 309-316, March.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. David Adamson & Thilak Mallawaarachchi & John Quiggin, 2007. "Water use and salinity in the Murray-Darling Basin: A state-contingent model ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(3), pages 263-281, September.
    2. Serra, Teresa & Zilberman, David & Gil, Jose Maria, 2008. "Farms' technical inefficiencies in the presence of government programs," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(1), March.
    3. Crean, Jason & Parton, Kevin & Mullen, John & Jones, Randall, 2013. "Representing climatic uncertainty in agricultural models – an application of state-contingent theory," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(3), September.
    4. David Adamson & Thilak Mallawaarachchi & John Quiggin, 2006. "State-contingent modelling of the Murray Darling Basin: implications for the design of property rights," Murray-Darling Program Working Papers WP2M06, Risk and Sustainable Management Group, University of Queensland.
    5. Katengeza, Samson P. & Holden, Stein T. & Lunduka, Rodney W., 2016. "Adoption of Drought Tolerant Maize Varieties under Rainfall Stress in Malawi," 2016 AAAE Fifth International Conference, September 23-26, 2016, Addis Ababa, Ethiopia 246907, African Association of Agricultural Economists (AAAE).
    6. Perry, Neil & Shankar, Sriram, 2017. "The State-contingent Approach to the Noah's Ark Problem," Ecological Economics, Elsevier, vol. 134(C), pages 65-72.
    7. Serra, Teresa & Oude Lansink, Alfons, 2014. "Measuring the impacts of production risk on technical efficiency: A state-contingent conditional order-m approach," European Journal of Operational Research, Elsevier, vol. 239(1), pages 237-242.
    8. Macedo, Pedro & Scotto, Manuel, 2014. "Cross-entropy estimation in technical efficiency analysis," Journal of Mathematical Economics, Elsevier, vol. 54(C), pages 124-130.
    9. Pedro Macedo & Elvira Silva & Manuel Scotto, 2014. "Technical efficiency with state-contingent production frontiers using maximum entropy estimators," Journal of Productivity Analysis, Springer, vol. 41(1), pages 131-140, February.
    10. repec:wsi:wepxxx:v:03:y:2017:i:03:n:s2382624x16500429 is not listed on IDEAS
    11. Nordblom, T.L. & Hume, I.H. & Finlayson, J.D. & Pannell, D.J. & Holland, J.E. & McClintock, A.J., 2015. "Distributional consequences of upstream tree plantations on downstream water users in a Public–Private Benefit Framework," Agricultural Systems, Elsevier, vol. 139(C), pages 271-281.
    12. Carter, Chris & Crean, Jason & Kingwell, Ross S. & Hertzler, Greg, 2006. "Managing and Sharing the Risks of Drought in Australia," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25319, International Association of Agricultural Economists.

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