Research@StAndrews
 
The University of St Andrews

Research@StAndrews:FullText >
University of St Andrews Research >
University of St Andrews Research >
University of St Andrews Research >

Please use this identifier to cite or link to this item: http://hdl.handle.net/10023/2173
This item has been viewed 8 times in the last year. View Statistics

Files in This Item:

File Description SizeFormat
Seong_Hoon_ProducerTheory_CDMA.1201.pdf4.74 MBAdobe PDFView/Open
Title: A producer theory with business risks
Authors: Kim, Seong-Hoon
Moon, Seongman
Keywords: Uninsurable business risks
Markup
Risk premium
Hedge and offer
Price intertia
Stochastic dominance
Conditional sales ratio
HB Economic Theory
Issue Date: Jan-2012
Citation: Kim , S-H & Moon , S 2012 ' A producer theory with business risks ' Centre for Dynamic Macroeconomic Analysis, Working Paper , no. 1201 , CDMA - CENTRE FOR DYNAMIC MACROECONOMIC ANALYSIS , St Andrews .
Series/Report no.: Centre for Dynamic Macroeconomic Analysis, Working Paper
Abstract: In this paper, we consider a producer who faces uninsurable business risks due to incomplete spanning of asset markets over stochastic goods market outcomes, and examine how the presence of the uninsurable business risks affects the producer's optimal pricing and production behaviours. Three key (inter-related) results we find are: (1) optimal prices in goods markets comprise ‘markup’ to the extent of market power and ‘premium’ by shadow price of the risks; (2) price inertia as we observe in data can be explained by a joint work of risk neutralization motive and marginal cost equalization condition; (3) the relative responsiveness of risk neutralization motive and marginal cost equalization at optimum is central to the cyclical variation of markups, providing a consistent explanation for procyclical and countercyclical movements. By these results, the proposed theory of producer leaves important implications both micro and macro, and both empirical and theoretical.
Version: Postprint
URI: http://hdl.handle.net/10023/2173
http://www.st-andrews.ac.uk/cdma/papers.html#2012WP
Type: Working or discussion paper
Rights: (c) The author 2012
Publisher: CDMA - CENTRE FOR DYNAMIC MACROECONOMIC ANALYSIS
Appears in Collections:University of St Andrews Research
Economics & Finance Research



This item is protected by original copyright

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.

 

DSpace Software Copyright © 2002-2012  Duraspace - Feedback
For help contact: Digital-Repository@st-andrews.ac.uk | Copyright for this page belongs to St Andrews University Library | Terms and Conditions (Cookies)