Abstract
Closely linked with the problems associated with the timing of production, as discussed in the last chapter, is risk and uncertainty, which are often associated with the production and sale of products. Implementation of production that takes a very long time is often associated with uncertainty regarding the price which can be obtained for the product by selling at a later date. When it comes to bio-based production such as agricultural crops and other agricultural products, there is also uncertainty as to the production yield, since climatic conditions and diseases may play a role.
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- 1.
We assume that prices and weather conditions are independent variables. This may not be the case in real life because the weather influences yield, which may influence prices.
- 2.
Historically, there has been some confusion about names. Some authors refer to both U(y) and v(•) in (15.4) as a “utility function” and some even use the same name (Hardaker et al. 2004). Others explicitly denote the expression on the left side in (15.4) as “expected utility” (EU refers to Expected Utility). This is consistent with the expression on the right side of (15.4) which is the statistically expected value of the utility units obtained by the utility function v(•).
- 3.
References
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Rasmussen, S. (2013). Risk and Uncertainty. In: Production Economics. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-30200-8_15
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DOI: https://doi.org/10.1007/978-3-642-30200-8_15
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