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Estimating the firm's demand and supply functions under uncertainty without expected utility

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  • Elie Appelbaum

    () (Department of Economics, York University)

Abstract

This paper extends the literature on firms’ behaviour under uncertainty by providing a simple framework for empirical analysis of general non-expected utility behaviour. We show that standard duality techniques can be used to derive and estimate demand and supply functions for non-expected utility maximizing firms. Moreover, the framework also provides a simple econometric test for a necessary condition for expected utility behaviour. In an empirical example we apply the model to the US Furniture and Fixtures industry and find that demand and supply functions retain all the usual “intuitive” properties. We test for expected utility behaviour and find that it cannot be rejected.

Suggested Citation

  • Elie Appelbaum, 2000. "Estimating the firm's demand and supply functions under uncertainty without expected utility," Working Papers 2000_5, York University, Department of Economics.
  • Handle: RePEc:yca:wpaper:2000_5
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    File URL: http://www.sciencedirect.com/science/article/pii/S0148619505000664
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    References listed on IDEAS

    as
    1. Philippe Weil, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 29-42.
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    8. Elie Appelbaum & Parantap Basu, 2010. "A new methodology for studying the equity premium," Annals of Operations Research, Springer, vol. 176(1), pages 109-126, April.
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    More about this item

    Keywords

    Non-expected utility; Econometric test; Moments; Empirical application;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D2 - Microeconomics - - Production and Organizations
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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