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- Publisher Website: 10.1111/boer.12051
- Scopus: eid_2-s2.0-84953358535
- WOS: WOS:000368106700005
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Article: A Smooth Ambiguity Model of the Competitive Firm
Title | A Smooth Ambiguity Model of the Competitive Firm |
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Authors | |
Keywords | Ambiguity Ambiguity aversion Production |
Issue Date | 2015 |
Publisher | John Wiley & Sons Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/BOER |
Citation | Bulletin of Economic Research, 2015, v. 67, p. S97-S110 How to Cite? |
Abstract | This paper examines the optimal production decision of the competitive firm under price uncertainty when the firm's preferences exhibit smooth ambiguity aversion. Ambiguity is modeled by a second-order probability distribution that captures the firm's uncertainty about which of the subjective beliefs govern the price risk. Ambiguity preferences are modeled by the (second-order) expectation of a concave transformation of the (first-order) expected utility of profit conditional on each plausible subjective distribution of the price risk. Within this framework, we derive necessary and sufficient conditions under which the ambiguity-averse firm optimally produces less in response either to the introduction of ambiguity or to greater ambiguity aversion when ambiguity prevails. In the case that the price risk is binary, we show that ambiguity and greater ambiguity aversion always adversely affect the firm's production decision. |
Persistent Identifier | http://hdl.handle.net/10722/222581 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Wong, KP | - |
dc.date.accessioned | 2016-01-18T07:43:14Z | - |
dc.date.available | 2016-01-18T07:43:14Z | - |
dc.date.issued | 2015 | - |
dc.identifier.citation | Bulletin of Economic Research, 2015, v. 67, p. S97-S110 | - |
dc.identifier.uri | http://hdl.handle.net/10722/222581 | - |
dc.description.abstract | This paper examines the optimal production decision of the competitive firm under price uncertainty when the firm's preferences exhibit smooth ambiguity aversion. Ambiguity is modeled by a second-order probability distribution that captures the firm's uncertainty about which of the subjective beliefs govern the price risk. Ambiguity preferences are modeled by the (second-order) expectation of a concave transformation of the (first-order) expected utility of profit conditional on each plausible subjective distribution of the price risk. Within this framework, we derive necessary and sufficient conditions under which the ambiguity-averse firm optimally produces less in response either to the introduction of ambiguity or to greater ambiguity aversion when ambiguity prevails. In the case that the price risk is binary, we show that ambiguity and greater ambiguity aversion always adversely affect the firm's production decision. | - |
dc.language | eng | - |
dc.publisher | John Wiley & Sons Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/BOER | - |
dc.relation.ispartof | Bulletin of Economic Research | - |
dc.rights | Bulletin of Economic Research. Copyright © John Wiley & Sons Ltd. | - |
dc.rights | The definitive version is available at www.blackwell-synergy.com | - |
dc.subject | Ambiguity | - |
dc.subject | Ambiguity aversion | - |
dc.subject | Production | - |
dc.title | A Smooth Ambiguity Model of the Competitive Firm | - |
dc.type | Article | - |
dc.identifier.email | Wong, KP: kpwongc@hkucc.hku.hk | - |
dc.identifier.authority | Wong, KP=rp01112 | - |
dc.description.nature | postprint | - |
dc.identifier.doi | 10.1111/boer.12051 | - |
dc.identifier.scopus | eid_2-s2.0-84953358535 | - |
dc.identifier.hkuros | 256726 | - |
dc.identifier.volume | 67 | - |
dc.identifier.spage | S97 | - |
dc.identifier.epage | S110 | - |
dc.identifier.isi | WOS:000368106700005 | - |