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dc.contributor.authorKim, Seong-Hoon
dc.contributor.authorMoon, Seongman
dc.identifier.citationKim , S-H & Moon , S 2012 ' A producer theory with business risks ' Centre for Dynamic Macroeconomic Analysis, Working Paper , no. 1201 , Centre for Dynamic Macroeconomic Analysis , St Andrews .en
dc.identifier.otherPURE: 16027904
dc.identifier.otherPURE UUID: 3bddc960-e1bf-4285-97a9-753b2c9cd4e8
dc.description.abstractIn 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.
dc.publisherCentre for Dynamic Macroeconomic Analysis
dc.relation.ispartofseriesCentre for Dynamic Macroeconomic Analysis, Working Paperen
dc.rights(c) The author 2012en
dc.subjectUninsurable business risksen
dc.subjectRisk premiumen
dc.subjectHedge and offeren
dc.subjectPrice intertiaen
dc.subjectStochastic dominanceen
dc.subjectConditional sales ratioen
dc.subjectHB Economic Theoryen
dc.titleA producer theory with business risksen
dc.typeWorking or discussion paperen
dc.contributor.institutionUniversity of St Andrews. School of Economics and Financeen

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