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Risk-Neutrality versus Risk A version in a Model of Production Efficiency under Uncertainty

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  • Robert Kohn

Abstract

In an economy in which pollution from one sector is multiplicatively and stochastically damaging to another sector, there is efficiency when the expected ratio of the marginal rate of substitution to the marginal rate of transformation equals unity. When this ratio of variables is decomposed, the expected marginal rate of substitution approximately equals the expected marginal rate of transformation minus a correction based on covariance and a second correction based on variance. Under one definition of risk-neutrality both corrections vanish, whereas under another definition, it is only the correction based on covariance that vanishes. [Q25]

Suggested Citation

  • Robert Kohn, 1999. "Risk-Neutrality versus Risk A version in a Model of Production Efficiency under Uncertainty," International Economic Journal, Taylor & Francis Journals, vol. 13(1), pages 71-79.
    • Handle: RePEc:taf:intecj:v:13:y:1999:i:1:p:71-79
    DOI: 10.1080/10168739900000030
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    References listed on IDEAS

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    1. Robert E. Kohn, 1985. "A General Equilibrium Analysis of the Optimal Number of Firms in a Polluting Industry," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 347-354, May.
    2. Robert E. Kohn, 1998. "Pollution and the Firm," Books, Edward Elgar Publishing, number 1313.
    3. Holthausen, Duncan M, 1976. "Input Choices and Uncertain Demand," American Economic Review, American Economic Association, vol. 66(1), pages 94-103, March.
    4. Britto, Ronald, 1980. "Resource Allocation in a Simple, Two-Sector Model with Production Risk," Economic Journal, Royal Economic Society, vol. 90(358), pages 363-370, June.
    5. Batra, Raveendra N., 1974. "Resource allocation in a general equilibrium model of production under uncertainty," Journal of Economic Theory, Elsevier, vol. 8(1), pages 50-63, May.
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    Cited by:

    1. Horowitz Ira, 2001. "On Professor Kohn and Expected Utility: Correction and Clarification," International Economic Journal, Taylor & Francis Journals, vol. 15(2), pages 51-56, June.
    2. Robert E. Kohn, 2001. "On Professor Kohn and Expected Utility: Correction and Clarification-Rejoinder," International Economic Journal, Taylor & Francis Journals, vol. 15(2), pages 57-62, June.

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