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Empirical estimation of production risk using a cost function with panel data

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  • Tai-Hsin Huang

Abstract

The purposes of this study are twofold. First, it extends production risk from a production function to a more general cost function. The theoretical model is able to account for the effects of risk on a firm's minimum cost and optimal input demands. Second, the present paper provides an estimable framework for an analysis of the impacts of the risk on firm behaviour. Employing the model to Taiwan's electronics and information industry, it is found that production risk appears to play an important role in production cost. Evidence is found that the vast majority of sample firms belong to risk-averters.

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  • Tai-Hsin Huang, 2004. "Empirical estimation of production risk using a cost function with panel data," Applied Economics Letters, Taylor & Francis Journals, vol. 11(5), pages 297-301.
    • Handle: RePEc:taf:apeclt:v:11:y:2004:i:5:p:297-301
    DOI: 10.1080/1350485042000221553
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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.
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    5. Greg Traxler & Jose Falck-Zepeda & J.I. Ortiz-Monasterio R. & Ken Sayre, 1995. "Production Risk and the Evolution of Varietal Technology," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(1), pages 1-7.
    6. A. Charnes & W. W. Cooper & G. H. Symonds, 1958. "Cost Horizons and Certainty Equivalents: An Approach to Stochastic Programming of Heating Oil," Management Science, INFORMS, vol. 4(3), pages 235-263, April.
    7. G. Battese & A. Rambaldi & G. Wan, 1997. "A Stochastic Frontier Production Function with Flexible Risk Properties," Journal of Productivity Analysis, Springer, vol. 8(3), pages 269-280, August.
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    Cited by:

    1. Tai-Hsin Huang & Ying-Ting Liao & Li-Chih Chiang, 2010. "An examination on the cost efficiency of the banking industry under multiple output prices' uncertainty," Applied Economics, Taylor & Francis Journals, vol. 42(9), pages 1169-1182.

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