Stochastic Returns and the Theory of the Firm.
HARVARD UNIV CAMBRIDGE MASS
Pagination or Media Count:
The paper is an application of the expected utility maximization hypothesis which attempts to provide a partial explanation of the paucity of organized trading and shifting of risks through the use of the price mechanism. In the model analyzed here, factor inputs with known price can have a stochastic marginal product. The firm increases the risk it bears by using more of the factors with stochastic marginal product. For most of the cases examined in the paper, the firm can self-insure by using factors of production which have a non-stochastic marginal product, and yield positive profit when not used with the factors of production with stochastic marginal product. Author
- Economics and Cost Analysis
- Operations Research