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Rethinking Production Under Uncertainty

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  • John H. Cochrane

Abstract

Conventional models of production under uncertainty specify that output is produced in fixed proportions across states of nature. I investigate a representation of technology that allows firms to transform output from one state to another. I allow the firm to choose the distribution of its random productivity from a convex set of such distributions, described by a limit on a moment of productivity scaled by a natural productivity shock. The model produces a simple discount factor linked to productivity, which can be used to price a wide variety of assets, without regard to preferences.

Suggested Citation

  • John H. Cochrane, 2019. "Rethinking Production Under Uncertainty," NBER Working Papers 26535, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26535
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    References listed on IDEAS

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    1. Constantinides, George M & Duffie, Darrell, 1996. "Asset Pricing with Heterogeneous Consumers," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 219-240, April.
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    3. Frederico Belo & Xiaoji Lin & Santiago Bazdresch, 2014. "Labor Hiring, Investment, and Stock Return Predictability in the Cross Section," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 129-177.
    4. Massimiliano Croce, Mariano, 2014. "Long-run productivity risk: A new hope for production-based asset pricing?," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 13-31.
    5. Liu, Laura Xiaolei & Zhang, Lu, 2014. "A neoclassical interpretation of momentum," Journal of Monetary Economics, Elsevier, vol. 67(C), pages 109-128.
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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