AN INVESTIGATION OF THE RELATIONSHIP BETWEEN CONSTRAINT OMISSION AND RISK AVERSION IN FIRM RISK PROGRAMMNG MODELS

A model with omitted resource constraints is suggested as an alternative to a risk aversion model for explaining economic behavior. This paper uses two standard mathematical programming models to further explore this issue. One model is a standard profit maximization linear programming model and the other is a risk averse quadratic programming model with part of the constraints deleted. Theoretical investigation of these models demonstrates that risk aversion can substitute for omitted resource constraints. A small empirical model is then solved under both formulations. With resource constraints deleted, positive risk aversion is necessary to obtain a similar enterprise organization as under profit maximization with complete constraints. These two solutions are then interpreted with the theoretical optimality conditions.


Issue Date:
1986-12
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/29787
Published in:
Southern Journal of Agricultural Economics, Volume 18, Number 2
Page range:
147-154
Total Pages:
8




 Record created 2017-04-01, last modified 2017-08-24

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