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Unpublished Paper
Forward-Looking Competitive Firm Under Uncertainty
CARD Working Papers
  • Sergio H. Lence, Iowa State University
  • Dermot J. Hayes, Iowa State University
Publication Date
6-1-1993
Series Number
93-WP 111
Abstract
This study of the firm under uncertainty relaxes the standard single production cycle assumption. Under realistic circumstances, a forward-looking risk-averse firm will produce more than a risk-neutral firm, and an increase in the mean-preserving price spread will increase the risk-averse firm's production. These results depend on firms realizing that the prices of inputs required for production in subsequent periods are correlated with the prices of current output. There are two important implications of this work. First, empirical work should not assume, nor should it find a monotonic relationship between output and the level of risk or risk aversion. Secondly, one can rationalize previously unexplained real-world behavior such as the relative insensitivity of production and sales to current prices, and the spreading of sales over time.
Publication Information

This working paper was published as Lence, Sergio H. and Dermot J. Hayes, "The Forward-Looking Competitive Firm under Uncertainty," American Journal of Agricultural Economics 80 (1998): 303–312, doi:10.2307/1244503.

Citation Information
Sergio H. Lence and Dermot J. Hayes. "Forward-Looking Competitive Firm Under Uncertainty" (1993)
Available at: http://works.bepress.com/dermot_hayes/31/