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Production Under Uncertainty: A Simulation Study

Sriram Shankar (), Christopher O'Donnell and John Quiggin ()

No 151193, Risk and Sustainable Management Group Working Papers from University of Queensland, School of Economics

Abstract: In this article we model production technology in a state-contingent framework. Our model analyzes production under uncertainty without regard to the nature of producer risk preferences. In our model producers? risk preferences are captured by the risk-neutral probabilities they assign to the different states of nature. Using a state-general state-contingent specification of technology we show that rational producers who encounter the same stochastic technology can make significantly different production choices. Further, we develop an econometric methodology to estimate the risk-neutral probabilities and the parameters of stochastic technology when there are two states of nature and only one of which is observed. Finally, we simulate data based on our state-general state-contingent specification of technology. Biased estimates of the technology parameters are obtained when we apply conventional ordinary least squares (OLS) estimator on the simulated data.

Keywords: Production Economics; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2010
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http://ageconsearch.umn.edu/record/151193/files/WPR10_03.pdf (application/pdf)

Related works:
Journal Article: Production under uncertainty: a simulation study (2013) Downloads
Working Paper: Production Under Uncertainty: A Simulation Study (2010) Downloads
Working Paper: Production Under Uncertainty: A Simulation Study (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uqsers:151193

DOI: 10.22004/ag.econ.151193

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