Optimisation of Production Under Uncertainty The State-Contingent Ap
The book provides a short review of the classical approach to planning and decision making under uncertainty. It further explains the concept of state-contingent goods, and it extends earlier work on the state-contingent approach to describing production
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Svend Rasmussen
Optimisation of Production Under Uncertainty The State-Contingent Approach
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Dr. Svend Rasmussen Institute of Food and Resource Economics University of Copenhagen Rolighedsvej 25 1958 Frederiksberg C, Copenhagen Denmark e-mail: [email protected]
ISSN 2191-5504 ISBN 978-3-642-21685-5 DOI 10.1007/978-3-642-21686-2
e-ISSN 2191-5512 e-ISBN 978-3-642-21686-2
Springer Heidelberg Dordrecht London New York Ó Svend Rasmussen 2011 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: eStudio Calamar, Berlin/Figueres Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
Preface
This book presents a new approach to the optimisation of production under uncertainty. It has its roots in a leave which I spent at the School of Economics, University of New England, Armidale, Australia, in 2002. At that time, Robert G. Chambers and John Quiggin had just presented their book Uncertainty, Production, Choice, and Agency—The State-Contingent Approach, which included a new theoretical approach to the description of production under uncertainty. As a result of discussions about the book with my colleagues, I realised that the concepts developed and presented by Chambers and Quiggin could be used as the basis for deriving criteria for optimal production under uncertainty. The state-contingent approach differs from the traditional approach to planning under uncertainty, which has its foundation in the von Neumann-Morgenstern utility function and the theory of expected utility, including the EV-model. To throw light on the differences and similarities between the two approaches, the introductory chapters give a very general introduction to decision making under uncertainty, including the theory of expected utility and the classic EV model. The last part of the book uses the concepts of the state-contingent approach to derive criteria for optimal application and allocation of inputs when producing under uncertainty. This work is a natural extension of the author’s book Production Economics. The Basic Theory of Production Optimisation, which deals with the optimisation of production under certainty. Its primary audience is
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