Jointly radial and translation homothetic preferences: generalized constant risk aversion

Summary. The paper identifies the structural restrictions on preferences required for them to exhibit both translation homotheticity in particular direction and radial homotheticity. The results are illustrated by an application to an asset allocation problem in the absence of riskless asset.Received: 22 January 2002, Revised: 31 March 2003, JEL Classification Numbers: D8, D2. Correspondence to: Robert G. Chambers     

The state‐contingent approach to production under uncertainty*

The central claim of this paper is that the state‐contingent approach provides the best way to think about all problems in the economics of uncertainty, including problems of consumer choice, the theory of the firm, and principal–agent relationships. This claim is illustrated by recent developments in, and applications of, the state‐contingent approach.     

Price Stabilization and the Risk-Averse Firm

An analytically simple and tractable approach to firm-level welfare analysis of complete and partial mean-preserving price stabilization for producers with general risk-averse preferences facing a stochastic technology is developed. Necessary and sufficient conditions for price stabilization to be welfare enhancing are derived under different assumptions of the producer's preferences and the producer's technology. Existing stabilization results for the risk-averse firm are shown to be corollaries of these more general results.     

Modelling socially optimal land allocations for sugar cane growing in North Queensland: a linked mathematical programming and choice modelling study

A modelling framework is developed to determine the joint economic and environmental net benefits of alternative land allocation strategies. Estimates of community preferences for preservation of natural land, derived from a choice modelling study, are used as input to a model of agricultural production in an optimisation framework. The trade-offs between agricultural production and environmental protection are analysed using the sugar industry of the Herbert River district of north Queensland as an example. Spatially-differentiated resource attributes and the opportunity costs of natural land determine the optimal trade-offs between production and conservation for a range of sugar prices.     

Declining inflows and more frequent droughts in the Murray–Darling Basin: climate change,impacts and adaptation*

It is likely that climate change will be associated with reductions in inflows of water to the Murray–Darling Basin. In this study, we analyse the effects of climate change in the Murray–Darling Basin using a simulation model that incorporates a state‐contingent representation of uncertainty. The severity of the impact depends, in large measure, on the extent to which climate change is manifested as an increase in the frequency of drought conditions. Adaptation will partially offset the adverse impact of climate change.     

Risk, PPPs AND THE Public Sector Comparator

This paper argues that the "first generation" approaches to private investment in public infrastructure in the United Kingdom and Australia were inappropriate and socially costly. In most cases, the PPP approach involves an inappropriate allocation of risk between the public and private sectors, an excessive cost of capital, and an inappropriate bundling of risk through the use of a single private partner (or consortium) rather than separate contracting for separate project stages. Conditions under which a PPP approach is likely to be appropriate are considered. The main conclusion is that the PFI/PPP approach should be adopted only in special cases.     

STABILISATION AND RISK REDUCTION IN AUSTRALIAN AGRICULTURE*

Agricultural producers typically are faced with risk about the yields they will experience and the prices they will receive. Stabilisation schemes can spread risk and thereby reduce the risk faced by individual producers. The risk-reducing capacity of a scheme and the cost of risk reduction depend upon the design of the scheme. In particular, it is important to distinguish between risk and instability. A classification of scheme designs is presented to bring out the effects of various design types. Schemes for the wheat industry are given most attention.     

Existence Value and the Contingent Valuation Method

People express concern about the possible extinction of animal species which they will never see, about damage to wilderness areas they will never visit, and so on. Such concerns are often interpreted by economists in terms of 'existence' or 'passive use' values. Three views have been proposed regarding the appropriate way of dealing with existence values in benefit-cost analysis. First, the existence values and concerns about environmental preservation that are not related to use may be disregarded. Second, concerns about environmental preservation may be taken into account, but not interpreted as existence values or evaluated in monetary terms. Third, the benefit-cost analysis may be modified to incorporate monetary estimates of existence values. Advocates of the third approach have developed a range of techniques for eliciting existence values, collectively referred to as the contingent valuation method. In this paper, the concept of existence value and the techniques of contingent valuation are surveyed, with the aim or providing a basis for comparisons of the three approaches described above.