Logo
Munich Personal RePEc Archive

Optimal Output for the Regret-Averse Competitive Firm Under Price Uncertainty

Broll, Udo and Ergozue, Martin and Welzel, Peter and Wong, Wing-Keung (2013): Optimal Output for the Regret-Averse Competitive Firm Under Price Uncertainty.

[thumbnail of MPRA_paper_51703.pdf]
Preview
PDF
MPRA_paper_51703.pdf

Download (72kB) | Preview

Abstract

We study the optimal production of a competitive risk-averse firm under price uncertainty. We suppose that the firm is also regret-averse. For example, if market prices ex post turn out to be very high the firm might regret not producing more. If it turns out that the price is low the firm might regret an over-production. We find that optimal output under regret aversion might be higher than under risk aversion. We also prove that optimal production could increase or decrease when the regret-averse coefficient increases. In general, we show that the regret-avers firm tend to hedge their bets, taking into account the possibility that their decisions may turn out to be ex post not optimal. These predictions can help explain the fact the price uncertainty has not such an extreme impact than those would be derived from pure risk-averse preferences.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.