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Competitive Firm (competitive + firm)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	100%

Selected Abstracts

The Production Responses of the Competitive Firm to Three Conventional Distributional Shifts: a Unified Perspective

METROECONOMICA, Issue 2 2000
Wayne Simpson
This paper presents a unified perspective on the production responses of the competitive firm to three conventional distributional shifts: (i) a rightward shift of the distribution, (ii) a Rothschild,Stiglitz increase in risk, and (iii) a Menezes et al. increase in downside risk. In particular, assuming that the von Neumann,Morgenstern utility is increasing and concave, and assuming its higher-order derivatives are uniformly signed, we demonstrate that the production responses are unambiguous in the case of price less than or equal to marginal cost. In the alternative case of price greater than marginal cost, we then demonstrate that the production responses can be signed unambiguously by reference to sufficient conditions motivated by absolute risk aversion and by absolute prudence. [source]

Pollution Abatement Investment When Environmental Regulation Is Uncertain

JOURNAL OF PUBLIC ECONOMIC THEORY, Issue 2 2000
Y.H. Farzin
In a dynamic model of a risk-neutral competitive firm that can lower its pollution emissions per unit of output by building up abatement capital stock, we examine the effect of a higher pollution tax rate on abatement investment both under full certainty and when the timing or the size of the tax increase is uncertain. We show that a higher pollution tax encourages abatement investment if it does not exceed a certain threshold rate. However, akin to the Diamond-Mirrlees tax anomaly, it is possible that a higher pollution tax rate results in more pollution. The magnitude uncertainty discourages abatement investment, but at the time of the actual tax increase the abatement investment path may shift either upward or downward. On the other hand, when the timing is uncertain, the abatement investment path always jumps upward, thus suggesting that the effect of magnitude uncertainty on the optimal investment path may be more pronounced than that of timing uncertainty. Further, we show that the ad hoc practice of raising the discount rate to account for the uncertainty leads to underinvestment in abatement capital. We show how the size of this underinvestment bias varies with the future tax increase. Finally, we show that a credible threat to accelerate the tax increase can induce more abatement investment. [source]

Duality, income and substitution effects for the competitive firm under price uncertainty

MANAGERIAL AND DECISION ECONOMICS, Issue 4 2005
Carmen F. Menezes
This paper uses duality theory to decompose the total effect on the competitive firm's output of an increase in the riskiness of output price into income and substitution effects. Properties of preferences that control the sign of each effect are identified. The analysis extends to the general class of quasi-linear decision models in which the payoff is linear in the random variable. Copyright © 2005 John Wiley & Sons, Ltd. [source]

The Production Responses of the Competitive Firm to Three Conventional Distributional Shifts: a Unified Perspective

Liquidity risk and the hedging role of options

THE JOURNAL OF FUTURES MARKETS, Issue 8 2006
Kit Pong Wong
This study examines the impact of liquidity risk on the behavior of the competitive firm under price uncertainty in a dynamic two-period setting. The firm has access to unbiased one-period futures and option contracts in each period for hedging purposes. A liquidity constraint is imposed on the firm such that the firm is forced to terminate its risk management program in the second period whenever the net loss due to its first-period hedge position exceeds a predetermined threshold level. The imposition of the liquidity constraint on the firm is shown to create perverse incentives to output. Furthermore, the liquidity constrained firm is shown to purchase optimally the unbiased option contracts in the first period if its utility function is quadratic or prudent. This study thus offers a rationale for the hedging role of options when liquidity risk prevails. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:789,808, 2006 [source]

OPTIMAL EXPORT AND HEDGING DECISIONS WHEN FORWARD MARKETS ARE INCOMPLETE

BULLETIN OF ECONOMIC RESEARCH, Issue 1 2007
Kit Pong Wong
D81; F23; F31 ABSTRACT This paper examines the behaviour of the competitive firm that exports to two foreign countries under multiple sources of exchange rate uncertainty. There is a forward market between the home currency and one foreign country's currency, but there are no hedging instruments directly related to the other foreign country's currency. We show that the separation theorem holds when the firm optimally exports to the foreign country with the currency forward market. The full-hedging theorem holds either when the firm exports exclusively to the foreign country with the currency forward market or when the relevant spot exchange rates are independent. In the case that the relevant spot exchange rates are positively (negatively) correlated in the sense of regression dependence, the firm optimally opts for a short (long) forward position for cross-hedging purposes. [source]

MONOPOLISTIC COMPETITION WITH EFFICIENCY GAPS AND A HECKSCHER-OHLIN TRADE PATTERN,

THE JAPANESE ECONOMIC REVIEW, Issue 3 2006
TORU KIKUCHI
We develop a two-factor, three-sector model of international trade in which the monopolistically competitive firms are characterized by different fixed production costs. We show that, depending on the pattern of the international distribution of factor endowments, the trade pattern is determined not only by relative factor endowments as suggested by Heckscher and Ohlin, but also by absolute factor endowments via a mechanism of competitive selection in the monopolistically competitive sector. [source]

PROFIT TAX AND FIRM MOBILITY IN A THREE-COUNTRY MODEL

AUSTRALIAN ECONOMIC PAPERS, Issue 2 2010
WATARU JOHDO
We construct a three-country model that incorporates international relocation by imperfectly competitive firms and examine both the effects of each country's profit tax reduction on the consumption and welfare of all countries, and the incentive for the countries to decrease the profit tax. In such a model, both the terms of trade and international relocation of firms offer the key to understanding the impacts of one country's profit tax policy. In particular, we note that the relocation of firms from the other two countries is positively related to the wage incomes of the third country through a shift in labour demand, and the terms-of-trade improvement is not only positively related to the wage incomes, but also negatively related to profit incomes through a shift in world consumption demand. We show that (i) in a three-country world economy, regardless of the reduction's source, the profit tax reduction of each country leads to relocation of firms away from foreign countries toward its own economy and deteriorates the terms of trade of its economy and (ii) this becomes a ,beggar-thy-neighbour' policy in the sense that it lowers the welfare of the other foreign countries. [source]

LEARNING, EXTERNALITIES, AND THE SALE OF INVENTIONS TO FIRMS WITH CORRELATED VALUATIONS

AUSTRALIAN ECONOMIC PAPERS, Issue 4 2004
JOHN T. KING
I examine how an inventor's ability to learn affects the bargaining outcome when she attempts to sell a discovery to one of two oligopolistically competitive firms with correlated and private valuations. It is shown that learning gives the inventor an incentive to lower her proposed price to the first firm approached since being rejected would cause her to be pessimistic when dealing with the second firm. At the same time, however, the inventor would like to raise her proposed price since this pessimism is weaker if she is rejected upon making a high proposal. Another incentive to raise the proposal comes from the fact that learning increases the first firm's willingness to pay for the invention. Computational results suggest that the first effect dominates and thus the inventor lowers her proposal in the first round. When dealing with the second firm, it is shown that learning results in a lower equilibrium proposal and contracting with more types. Moreover, it is shown that the cost of lowering the proposed price outweighs the benefit of contracting with more types so that learning in general reduces the continuation value associated with contracting in the second round. [source]