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LeChatelier Effects for the Competitive Firm under Price Uncertainty

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  • Arthur Snow

Abstract

The intuition that constrained choices are less elastic as well as suboptimal is confirmed by LeChatelier's principle in economic models of optimizing behavior for environments with no uncertainty. For a competitive entrepreneurial firm facing output price uncertainty, risk preferences interact with possibilities for substituting between capital and labor in production to determine the presence or absence of LeChatelier effects for labor demanded. LeChatelier's principle holds without qualification for output supplied in the neighborhood of any long‐run equilibrium with respect to both monotone likelihood ratio improvements in the price distribution and increases in risk aversion. Global LeChatelier predictions, however, are unattainable.

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  • Arthur Snow, 2000. "LeChatelier Effects for the Competitive Firm under Price Uncertainty," Southern Economic Journal, John Wiley & Sons, vol. 66(3), pages 715-728, January.
    • Handle: RePEc:wly:soecon:v:66:y:2000:i:3:p:715-728
    DOI: 10.1002/j.2325-8012.2000.tb00283.x
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    References listed on IDEAS

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