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Safety in conformity but profits deviance

de Meza, David (1986) Safety in conformity but profits deviance. Canadian Journal of Economics, 19 (2). pp. 261-269. ISSN 1540-5982

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Abstract

Durable plant must often be installed before knowing the future price of the variable inputs with which it will be combined. As a result, exante identical firms may adopt different production techniques in industry equilibrium. Strong risk aversion makes this less likely but introduces the possibility of multiple equilibria. Firms then have an incentive to insulate themselves from competitive risk by opting for the same technology as the rest of the industry. With heterogeneous risk preferences it may be the most risk-averse firms that opt for production methods intensive in the input with random price.

Item Type: Article
Official URL: http://economics.ca/cje/en/index.php
Additional Information: © 1986 The Canadian Economics Association
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Management
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 14 Apr 2011 14:54
URL: http://eprints.lse.ac.uk/35579/

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