The firm under uncertainty with general risk-averse preferences: A state-contingent approach

This paper summarizes and synthesizes recent developments in the state-cont ingent theory of production under uncertainty presented by Chambers and Qui ggin (2000) with a particular focus on the case of generalized expected uti lity preferences. The problem of the risk-averse firm under price and produ ction uncertainty is analyzed using a state-contingent production technolog y and general risk-averse preferences. The concept of an efficient frontier , which identifies all potentially optimal production plans for weakly risk -averse decisionmakers, is introduced and used to develop comparative stati c results. For constant absolute risky technologies, the efficient frontier is shown to correspond to a unique isocost contour.