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Factor Demand under Conditions of Product Demand and Supply Uncertainty

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  • Balvers, Ronald J
  • Miller, Norman C

Abstract

This paper develops a theory of factor demand under uncertainty that encompasses neoclassical factor demand and Keynesian effective factor demand as special cases. The model allows factor demand and output to move positively with product demand, even with a constant product price. This, in turn, permits real wages to move procyclically in response to product demand shocks. In addition, the model provides a new perspective on the "adding-up" problem (which posits that total factor payments exceed output if increasing returns to scale exist) and generates positive uncertainty profits that are similar in spirit to those of Frank Knight. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Balvers, Ronald J & Miller, Norman C, 1992. "Factor Demand under Conditions of Product Demand and Supply Uncertainty," Economic Inquiry, Western Economic Association International, vol. 30(3), pages 544-555, July.
    • Handle: RePEc:oup:ecinqu:v:30:y:1992:i:3:p:544-55
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    Cited by:

    1. Horowitz, I. & Thompson, P., 1995. "The sophisticated decision maker: All work and no pay?," Omega, Elsevier, vol. 23(1), pages 1-11, February.
    2. Keun Lee & Sanika Sulochani Ramanayake, 2018. "Adding-Up Problem and Wage–Productivity Gap in Exports of Developing Countries: A Source of the Middle-Income Trap," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 30(5), pages 769-788, December.
    3. Steven M. Fazzari & Piero Ferri & Edward Greenberg, 1999. "Aggregate Demand and Micro Behavior: A New Perspective on Keynesian Macroeconomics," Macroeconomics 9902005, University Library of Munich, Germany.

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