Risk Aversion and Plant Size: Theory and Application to Tar-Sands Oil Plants

J. David Fuller and Yigal Gerchak

Canadian Journal of Economics, 1989, vol. 22, issue 1, 164-73

Abstract: Motivated by Canadian tar-sands oil plants, the authors investigate the dependence of plant size on various parameters for a risk-averse firm, assuming that construction lead time is increasing in size. They show that optimal plant size decreases with risk aversion, increases in mean price, and decreases in price uncertainty. If the firm's share in the plant is above optimal, they show that plant size increases as the share is decreased. Thus, risk sharing can offset the effect of risk aversion on the optimal plant size.

Date: 1989
References: Add references at CitEc
Citations:

Downloads: (external link)
http://links.jstor.org/sici?sici=0008-4085%2819890 ... AAPST%3E2.0.CO%3B2-D (text/html)
only available to JSTOR subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cje:issued:v:22:y:1989:i:1:p:164-73

Ordering information: This journal article can be ordered from
https://www.economic ... ionen/membership.php

Access Statistics for this article

Canadian Journal of Economics is currently edited by Zhiqi Chen

More articles in Canadian Journal of Economics from Canadian Economics Association Canadian Economics Association Prof. Werrner Antweiler, Treasurer UBC Sauder School of Business 2053 Main Mall Vancouver, BC, V6T 1Z2. Contact information at EDIRC.
Bibliographic data for series maintained by Prof. Werner Antweiler ().