SEPARABILITY OF STOCHASTIC PRODUCTION DECISIONS FROM PRODUCER RISK PREFERENCES IN THE PRESENCE OF FINANCIAL MARKETS

Robert G Chambers () and John Quiggin ()

No 28561, Working Papers from University of Maryland, Department of Agricultural and Resource Economics

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.

Keywords: Financial Economics; Production Economics; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2002
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