| Abstract: | We propose a minimax regret approach to optimal factor demand under uncertainty. Regret is the deviation of any given decision from the optimal decision based on a specified set of possible scenarios for the uncertain variables. This approach does not require the specification of instrumental variables to control for unobserved states of nature, and also does not require specification of the number of possible states in advance. Importantly, ex post production shocks can be estimated using our approach, and full statistical inferences can be obtained. Econometric techniques are based on Bayesian analysis using Markov Chain Monte Carlo techniques. A substantive empirical application is provided to illustrate the new approach. |
