Ambiguity and the Value of Information: An Almost-objective Events Analysis

Using the concept of almost-objective acts, due to Machina, this paper shows that ambiguity aversion may be defined in terms of the value of information. In particular, for expected utility preferences, the value of information with respect to almost-objective acts is asymptotically equal to zero. I thank Simon Grant, Mark Machina, and an anonymous referee for helpful comments.     

The State-Contingent Properties of Stochastic Production Functions

The state-contingent properties of the most frequently used representations of stochastic production in the agricultural-economics literature are examined. Particular attention is paid to the cases of multiplicative uncertainty, additive uncertainty, and the Just–Pope production function. State-contingent technologies and their associated cost functions are reviewed, and that theory is applied to the stochastic production function. A generalization of the Just–Pope technology that has desirable state-contingent characteristics is proposed. Cost functions based upon state-contingent technologies are compared with cost functions based on a parametrized distribution representation of production uncertainty.     

Output Price Subsidies in a Stochastic World

This article studies the comparative statics of output subsidies for firms, with monotonic preferences over costs and returns, that face price and production uncertainty. The modeling of deficiency payments, support-price schemes, and stochastic supply shifts in a state-space framework is discussed. It is shown how these notions can be used, via a simple application of Shephard's lemma, to analyze input-demand shifts once comparative-static results for supply are available. A range of comparative-static results for supply are then developed and discussed.     

CONTRADICTORY PREDICTIONS ON SUPPLY RESPONSE UNDER STABILIZATION: A RECONCILIATION

Two separate bodies of literature on stabilization give radically different results, yet these contradictions have not attracted any attention. The first arises from the neoclassical theory of stabilization and predicts that beneficial stabilization will always attract positive supply response. The second arises from the work of Newbery and Stiglitz and predicts 'perverse' supply response for highly risk averse producers. In this paper, the differences which yield these results are described and some suggestions are made for a generalized model.     

Water use and salinity in the Murray–Darling Basin: A state-contingent model*

The supply of water for irrigation is subject to climatic and policy uncertainty. The object of the present paper is to show how the linear and non-linear programming models commonly used in modelling problems such as those arising in the Murray–Darling Basin may be adapted to incorporate a state-contingent representation of uncertainty. Estimates showing the potential value of improved water use are also derived.     

Efficiency analysis in the presence of uncertainty

In a stochastic decision environment, differences in information can lead rational decision makers facing the same stochastic technology and the same markets to make different production choices. Efficiency and productivity measurement in such a setting can be seriously and systematically biased by the manner in which the stochastic technology is represented. For example, conventional production frontiers implicitly impose the restriction that information differences have no effect on the way risk-neutral decision makers utilize the same input bundle. The result is that rational and efficient ex ante production choices can be mistakenly characterized as inefficient—informational differences are mistaken for differences in technical efficiency. This paper uses simulation methods to illustrate the type and magnitude of empirical errors that can emerge in efficiency analysis as a result of overly restrictive representations of production technologies.     

Environmental economics and the Murray–Darling river system

Much concern about the negative environmental consequences of agricultural development in Australia, including salinisation, waterlogging and algal blooms, has focused on the problems of the Murray–Darling Basin. The aim of this article is to provide an overview of the environmental problems of the Murray–Darling Basin from an economic perspective, and a selective survey of the relevant economic literature, including theoretical analysis, modelling and contributions to the development of water policy. In attempting to understand the complex problems of the Murray–Darling Basin, an eclectic approach drawing on externality, sustainability and property rights perspectives seems most appropriate.