This book demonstrates 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. The authors demonstrate that dual methods apply under uncertainty and that the dual representations can be developed for stochastic technologies. Moreover, proper exploitation of the properties of alternative primal and dual representations of preferences allows analysts to generalize and extend the results of the existing literature on preferences under uncertainty, thus making expected-utility theory largely superfluous for many decisions. These insights open the way for developments in the basic theory of production under uncertainty, the theory of hedging behavior, the analysis of agency problems and the theory of production insurance.
• State-of-the-art assessment of state-contingency analysis, a key tool to investigate the economics of uncertainty • Combines theory and applications in 'hot' areas such as insurance, futures and forward markets • Develops symmetry between consumer and producer choice problems, and doesn't rely on expected utility hypothesis
1. States of nature; 2. State-contingent production; 3. Risk aversion, preferences, and probability; 4. Indirect and dual representations of stochastic technologies; 5. State-contingent production: the theory; 6. Production with futures and forward markets; 7. Production insurance; 8. Production and non point source pollution regulation; 9. The moral hazard problem; 10. Endogenous reservation utility: agency and exploitation.
'… tremendous scope of achievement in this signal contribution to the literature … I would be remiss in doing other than recommend that Journal readers join me in treasuring this book in their library.' The Australian Journal of Agricultural and Resource Economics