Rethinking Production Under Uncertainty
Working Paper 26535
DOI 10.3386/w26535
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Conventional models of production under uncertainty specify that output is produced in fixed proportions across states of nature. I investigate a representation of technology that allows firms to transform output from one state to another. I allow the firm to choose the distribution of its random productivity from a convex set of such distributions, described by a limit on a moment of productivity scaled by a natural productivity shock. The model produces a simple discount factor linked to productivity, which can be used to price a wide variety of assets, without regard to preferences.
Published Versions
John H Cochrane, 2021. "Rethinking Production under Uncertainty," The Review of Asset Pricing Studies, vol 11(1), pages 1-59.