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Refutable implications of the firm model under risk

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  • Atanu Saha
  • C. Richard Shumway

Abstract

Curvature properties of the indirect utility function are shown to be necessary and sufficient for refutable behavioural postulates in the form of comparative static results, reciprocity relations, and restrictions on output and input responses for firm models under risk. These postulates are independent of onerous restrictions on risk preference, technology, or random variable distribution. As an exposition, the complete set of refutable implications for a multi-output firm operating under price risk is derived. At the data means, these implications are not rejected when they are tested using firm-level data, but both risk neutrality and constant absolute risk aversion are rejected. At individual observations, one implication is rejected almost as frequently as risk neutrality and constant absolute risk aversion.

Suggested Citation

  • Atanu Saha & C. Richard Shumway, 1998. "Refutable implications of the firm model under risk," Applied Economics, Taylor & Francis Journals, vol. 30(4), pages 441-448.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:4:p:441-448
    DOI: 10.1080/000368498325714
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    2. Liu, Yucan & Shumway, C. Richard, 2005. "Empirical Tests of the Refutable Implications of Expected Utility Maximization under Risk," 2005 Annual meeting, July 24-27, Providence, RI 19331, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Ragnar Tveteras & Ola Flaten & Gudbrand Lien, 2011. "Production risk in multi-output industries: estimates from Norwegian dairy farms," Applied Economics, Taylor & Francis Journals, vol. 43(28), pages 4403-4414.
    4. Qiujie Zheng & C. Richard Shumway, 2008. "Washington Biofuel Feedstock Crop Supply Analysis," Working Papers 2008-24, School of Economic Sciences, Washington State University.
    5. Liu, Yucan & Shumway, C. Richard, 2005. "Indirect Utility Maximization under Risk: A Heterogeneous Panel Application," 2005 Annual Meeting, July 6-8, 2005, San Francisco, California 36307, Western Agricultural Economics Association.

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