NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Rethinking Production Under Uncertainty

John H. Cochrane

NBER Working Paper No. 26535
Issued in December 2019, Revised in April 2020
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth

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.

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Document Object Identifier (DOI): 10.3386/w26535

 
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