Long‐Run Comparative Statics Under Output and Land Price Uncertainty
1988
Paris, Quirino
Several authors have noticed that, in the uncertain short run, the supply function may slope downward and the input demand functions may slope upward. These possibilities prevent the setup of unambiguous tests of rational behavior. In this article, testable hypotheses for the competitive firm operating in a price‐uncertain environment are derived assuming a long‐run horizon. Some of these hypotheses take the form of Slutsky‐type relations involving the relative input demand functions (the ratios of input to output quantities). Homogeneity restrictions involving input and output mean prices, in general, are absent under uncertainty. Conditions for restoring this homogeneity are also discussed. The main result is the rediscovery of the importance of relative quantities for the analysis of a long‐run equilibrium.
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