Duality, income and substitution effects for the competitive firm under price uncertainty

Carmen F. Menezes and X. Henry Wang
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Carmen F. Menezes: Department of Economics, University of Missouri-Columbia, Columbia, MO 65211, USA, Postal: Department of Economics, University of Missouri-Columbia, Columbia, MO 65211, USA
X. Henry Wang: Department of Economics, University of Missouri-Columbia, Columbia, MO 65211, USA, Postal: Department of Economics, University of Missouri-Columbia, Columbia, MO 65211, USA

Managerial and Decision Economics, 2005, vol. 26, issue 4, pages 249-257

Abstract: This paper uses duality theory to decompose the total effect on the competitive firm's output of an increase in the riskiness of output price into income and substitution effects. Properties of preferences that control the sign of each effect are identified. The analysis extends to the general class of quasi-linear decision models in which the payoff is linear in the random variable. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2005
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