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An Application of Duality under Uncertainty, Elie Appelbaum

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  • Elie Appelbaum

    (Department of Economics, York University)

Abstract

The purpose of this paper is to provide an empirical application of duality under uncertainty. Using the indirect utility function we develop a simple, empirically implementable framework, that can be used to estimate the effects of price uncertainty on firms’ behaviour. The model is used to test implications of the theory and to identify the effects of uncertainty on input demand. In an empirical example we estimate the effects of (energy and output) price uncertainty on input demand by the U.S. manufacturing industry. We find that production responses indicate the existence of risk aversion and are consistent with behaviour under decreasing absolute risk aversion. The actual effects of uncertain prices on input demand were, however, rather small.

Suggested Citation

  • Elie Appelbaum, 1996. "An Application of Duality under Uncertainty, Elie Appelbaum," Working Papers 1996_8, York University, Department of Economics.
    • Handle: RePEc:yca:wpaper:1996_8
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    File URL: http://dept.econ.yorku.ca/research/workingPapers/working_papers/1996/elie-1996-uncert-duality.pdf
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    References listed on IDEAS

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    1. 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 537-548, May/June.
    2. Dalal, Ardeshir, 1990. "Symmetry Restrictions in the Analysis of the Competitive Firm under Price Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 207-211, February.
    3. Appelbaum, Elie, 1979. "Testing price taking behavior," Journal of Econometrics, Elsevier, vol. 9(3), pages 283-294, February.
    4. Epstein, Larry G, 1980. "Multivariate Risk Independence and Functional Forms for Preferences and Technologies," Econometrica, Econometric Society, vol. 48(4), pages 973-985, May.
    5. Singleton, J. Clay & Wingender, John, 1986. "Skewness Persistence in Common Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(3), pages 335-341, September.
    6. Fuss, Melvyn & McFadden, Daniel (ed.), 1978. "Production Economics: A Dual Approach to Theory and Applications," Elsevier Monographs, Elsevier, edition 1, number 9780444850133.
    7. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number fuss1978.
    8. Antonovitz, Frances & Roe, Terry, 1986. "A Theoretical and Empirical Approach to the Value of Information in Risky Markets," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 105-114, February.
    9. Appelbaum, E., 1989. "Uncertainty And The Measurement Of Productivity," Papers 89-05, York (Canada) - Department of Economics.
    10. Larry Epstein, 1978. "Production Flexibility and the Behaviour of the Competitive Firm under Price Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(2), pages 251-261.
    11. Chavas, Jean-Paul & Pope, Rulon, 1985. "Price uncertainty and competitive firm behavior: Testable hypotheses from expected utility maximization," Journal of Economics and Business, Elsevier, vol. 37(3), pages 223-235, August.
    12. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (II): Applications of the Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 2, number fuss1978a.
    13. 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.
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    15. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
    16. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-268, August.
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    Cited by:

    1. Elie Appelbaum & Ulrich Kohli, 1997. "Import Price Uncertainty And The Distribution Of Income," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 620-630, November.

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