Separability of stochastic production decisions from producer risk preferences in the presence of financial markets

Robert Chambers () and John Quiggin

No WPR03_4, Risk & Uncertainty Working Papers from Risk and Sustainable Management Group, University of Queensland

Abstract: Separation results, as they are usually understood, refer to conditions under which a firm's production decisions are independent of its risk attitudes. Well-understood situations where separation occurs typically include those where technically feasible production opportunities are replicable in financial markets. This paper gives necessary and sufficient conditions for separation that go beyond these well-understood spanning conditions. To do so, we present 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 about the firm's technology and objective function.Our main analytical tool is the derivative-cost function, which gives the minimum cost of achieving a state-contingent return vector through a combination of production choices and trade in financial assets.

Keywords: state-contingent; production (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2003-09
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Separability of stochastic production decisions from producer risk preferences in the presence of financial markets (2009)
Working Paper: Separability of stochastic production decisions from producer risk preferences in the presence of financial markets (2003)
Working Paper: SEPARABILITY OF STOCHASTIC PRODUCTION DECISIONS FROM PRODUCER RISK PREFERENCES IN THE PRESENCE OF FINANCIAL MARKETS (2002)
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