Supply Theory sans Profit-MaximizationNo 4018, IZA Discussion Papers from Institute for the Study of Labor (IZA) Abstract: We utilize the analytical construct of a stochastic supply function to provide an aggregate representation of a finite collection of standard deterministic supply functions. We introduce a consistency postulate for a stochastic supply function that may be satisfied even if no underlying deterministic supply function is rationalizable in terms of profit maximization. Our consistency postulate is nonetheless equivalent to a stochastic expansion of supply inequality, which summarizes the predictive content of the traditional theory of competitive supply. A number of key results in the deterministic theory follow as special cases from this equivalence. In particular, it yields a probabilistic version of the law of supply, which implies the traditional specification. Our analysis thus provides a necessary and sufficient axiomatic foundation for a de-coupling of the predictive content of the classical theory of competitive firm behavior from its a priori roots in profit maximization, while subsuming the traditional theory as a special case. Keywords: weak axiom of profit maximization; stochastic consistency; stochastic supply function; supply aggregation; stochastic supply inequality; law of supply (search for similar items in EconPapers) Published in: The BE Journal of Theoretical Economics: Contributions, 2009, 9(1), Article 26 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:iza:izadps:dp4018 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IZA Discussion Papers from Institute for the Study of Labor (IZA) |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
Swedish Business School at Örebro University.