IDEAS home Printed from https://ideas.repec.org/p/ags/umdrwp/28561.html
   My bibliography  Save this paper

Separability Of Stochastic Production Decisions From Producer Risk Preferences In The Presence Of Financial Markets

Author

Listed:
  • Chambers, Robert G.
  • Quiggin, John C.

Abstract

This paper presents a unified treatment of the production and financial decisions available to a firm facing frictionless financial markets and a stochastic production technology under minimal assumptions on the firm's stochastic technology and objective function. The specific focus is on separation results for stochastic technologies, that is, on conditions under which the optimal production decision may be determined without regard to the risk preferences of the firm's owners. Necessary and sufficient conditions for separation, which generalize existing results, are presented.

Suggested Citation

  • Chambers, Robert G. & Quiggin, John C., 2002. "Separability Of Stochastic Production Decisions From Producer Risk Preferences In The Presence Of Financial Markets," Working Papers 28561, University of Maryland, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:umdrwp:28561
    DOI: 10.22004/ag.econ.28561
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/28561/files/wp02-19.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.28561?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chambers, Robert G. & Quiggin, John, 2008. "Narrowing the no-arbitrage bounds," Journal of Mathematical Economics, Elsevier, vol. 44(1), pages 1-14, January.
    2. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
    3. Rahi Rohit, 1995. "Optimal Incomplete Markets with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 65(1), pages 171-197, February.
    4. TallariniJr., Thomas D., 2000. "Risk-sensitive real business cycles," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 507-532, June.
    5. repec:arz:wpaper:eres1993-121 is not listed on IDEAS
    6. Clark, Stephen A., 1993. "The valuation problem in arbitrage price theory," Journal of Mathematical Economics, Elsevier, vol. 22(5), pages 463-478.
    7. Anderson, Ronald W & Danthine, Jean-Pierre, 1981. "Cross Hedging," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1182-1196, December.
    8. Sanford J. Grossman & Joseph E. Stiglitz, 1980. "Stockholder Unanimity in Making Production and Financial Decisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(3), pages 543-566.
    9. Ross, Stephen A, 1987. "Arbitrage and Martingales with Taxation," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 371-393, April.
    10. Robert G. Chambers & John Quiggin, 1998. "Cost Functions and Duality for Stochastic Technologies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 288-295.
    11. Cochrane, John H, 1991. "Production-Based Asset Pricing and the Link between Stock Returns and Economic Fluctuations," Journal of Finance, American Finance Association, vol. 46(1), pages 209-237, March.
    12. Chambers,Robert G. & Quiggin,John, 2000. "Uncertainty, Production, Choice, and Agency," Cambridge Books, Cambridge University Press, number 9780521622448, September.
    13. Prisman, Eliezer Z, 1986. "Valuation of Risky Assets in Arbitrage Free Economies with Frictions," Journal of Finance, American Finance Association, vol. 41(3), pages 545-557, July.
    14. Antonio E. Bernardo & Olivier Ledoit, 2000. "Gain, Loss, and Asset Pricing," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 144-172, February.
    15. Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-995, December.
    16. Danthine, Jean-Pierre, 1978. "Information, futures prices, and stabilizing speculation," Journal of Economic Theory, Elsevier, vol. 17(1), pages 79-98, February.
    17. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
    18. LeRoy,Stephen F. & Werner,Jan, 2014. "Principles of Financial Economics," Cambridge Books, Cambridge University Press, number 9781107024120, February.
    19. Anderson, Ronald W & Danthine, Jean-Pierre, 1983. "Hedger Diversity in Futures Markets," Economic Journal, Royal Economic Society, vol. 93(37), pages 370-389, June.
    20. Ronald W. Anderson & Jean-Pierre Danthine, 1983. "The Time Pattern of Hedging and the Volatility of Futures Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(2), pages 249-266.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert G. Chambers & Daniel C. Voica, 2017. "“Decoupled” Farm Program Payments are Really Decoupled: The Theory," American Journal of Agricultural Economics, John Wiley & Sons, vol. 99(3), pages 773-782, April.
    2. Chambers, Robert G. & Quiggin, John, 2008. "Narrowing the no-arbitrage bounds," Journal of Mathematical Economics, Elsevier, vol. 44(1), pages 1-14, January.
    3. Voica, Daniel C. & Wimmer, Stefan G., 2018. "The Production Effects of Crop Diversification Requirements under the European Union Greening Policy," 2018 Annual Meeting, August 5-7, Washington, D.C. 273874, Agricultural and Applied Economics Association.
    4. John Quiggin & Robert G. Chambers, 2006. "The state-contingent approach to production under uncertainty ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(2), pages 153-169, June.
    5. Voica, Daniel C., 2017. "The Effect of the Single Farm Payment Timing on Production Incentives," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258024, Agricultural and Applied Economics Association.
    6. Daniel Voica & Stefan Wimmer, 2018. "The Production Effects of Crop Diversification Requirements Under the European Union Greening Policy," Discussion Papers 1802, School of Economics and Finance, Massey University, New Zealand.
    7. Voica, Daniel C., 2014. "Are Subsidies Decoupled from Production in the Presence of Incomplete Financial Markets?," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169788, Agricultural and Applied Economics Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chambers, Robert G. & Quiggin, John, 2008. "Narrowing the no-arbitrage bounds," Journal of Mathematical Economics, Elsevier, vol. 44(1), pages 1-14, January.
    2. Chambers, Robert G. & Quiggin, John C., 2002. "Resource Allocation And Asset Pricing," Working Papers 28594, University of Maryland, Department of Agricultural and Resource Economics.
    3. Robert Chambers & John Quiggin, 2010. "Cost minimization and the stochastic discount factor," Annals of Operations Research, Springer, vol. 176(1), pages 349-368, April.
    4. Kim, Tae-Kyun, 1989. "The factor bias of technical change and technology adoption under uncertainty," ISU General Staff Papers 1989010108000010138, Iowa State University, Department of Economics.
    5. Kim, Jae-Gyeong, 1993. "Futures markets in an open economy," ISU General Staff Papers 1993010108000011461, Iowa State University, Department of Economics.
    6. Robert G. Chambers & John Quiggin, 2005. "Cost Minimization and Asset Pricing," Risk & Uncertainty Working Papers WP3R05, Risk and Sustainable Management Group, University of Queensland.
    7. Dionne, Georges & Santugini, Marc, 2014. "Entry, imperfect competition, and futures market for the input," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 70-83.
    8. Méndez Parra, Maximiliano, 2015. "Futures prices, trade and domestic supply of agricultural commodities," Economics PhD Theses 0115, Department of Economics, University of Sussex Business School.
    9. Cerreia-Vioglio, S. & Maccheroni, F. & Marinacci, M., 2015. "Put–Call Parity and market frictions," Journal of Economic Theory, Elsevier, vol. 157(C), pages 730-762.
    10. Röthig, Andreas, 2008. "The Impact of Backwardation on Hedgers' Demand for Currency Futures Contracts: Theory versus Empirical Evidence," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35698, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    11. David J. Pannell & Getu Hailu & Alfons Weersink & Amanda Burt, 2008. "More reasons why farmers have so little interest in futures markets," Agricultural Economics, International Association of Agricultural Economists, vol. 39(1), pages 41-50, July.
    12. Claudio Campanale & Rui Castro & Gian Luca Clementi, 2010. "Asset Pricing in a Production Economy with Chew-Dekel Preferences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 379-402, April.
    13. repec:zbw:bofrdp:1995_003 is not listed on IDEAS
    14. Francois Gourio, 2005. "Operating Leverage, Stock Market Cyclicality, and the Cross-Section of Returns," 2005 Meeting Papers 66, Society for Economic Dynamics.
    15. Viaene, Jean-Marie & Zilcha, Itzhak, 1995. "Multiple uncertainty, forward-futures markets and international trade," Discussion Papers, Series II 255, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    16. Batista Soares, David & Borocco, Etienne, 2022. "Rational destabilization in commodity markets," Journal of Commodity Markets, Elsevier, vol. 25(C).
    17. Adam-Muller, Axel F. A., 2000. "Hedging price risk when real wealth matters," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 549-560, August.
    18. Roelof Salomons, 2008. "A Theoretical And Practical Perspective On The Equity Risk Premium," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 299-329, April.
    19. Jouini, Elyes & Kallal, Hedi & Napp, Clotilde, 2001. "Arbitrage and viability in securities markets with fixed trading costs," Journal of Mathematical Economics, Elsevier, vol. 35(2), pages 197-221, April.
    20. Aleš Černý, 2003. "Generalised Sharpe Ratios and Asset Pricing in Incomplete Markets," Review of Finance, European Finance Association, vol. 7(2), pages 191-233.
    21. Joao Gomes & Leonid Kogan & Lu Zhang, 2003. "Equilibrium Cross Section of Returns," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 693-732, August.

    More about this item

    Keywords

    Financial Economics; Production Economics; Risk and Uncertainty;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:umdrwp:28561. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/daumdus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.