Effects of risk on prices and quantities of energy supplies. Volume 2. Overview of the economic theory of uncertainty and its implications for energy supply. Final report
This volume presents a synthesis of developments in the economic theory of uncertainty and a discussion of the implications of the theory for energy supply. Chapter 1 is an overview of the economics of uncertainty with precise definitions of basic concepts such as the meaning of risk, risk aversion, and insurance. Several propositions concerning the efficient spreading of risk and the possible mechanisms for risk-bearing are described. There is also a discussion of the efficiency with which the market provides insurance and other mechanisms for absorbing risks. Detailed applications of the economics of uncertainty to particular areas of energy supply are described in Volume III, but several general applications are suggested in this volume. Chapter 2 examines the effects of uncertainty on decisions of firms and industrial market structure. The results of this analysis cast doubt on several propositions of classical microeconomics. For example, firms may not choose the production technique with minimum cost in the presence of risk. There are many problems that require a wider analysis than a study of an industry in isolation. The desirability of an action taken in one sector of the economy may depend on the response of the rest of the economy. The study of these economic repercussions is the subject of general equilibrium analysis. Chapter 3 surveys the economic analysis of uncertainty within a general equilibrium framework. Chapter 4 is concerned with analyzing what is meant by information and its economic value. The determinants of the value of information are discussed, and a careful distinction is drawn between the value of information for private use and its value to society.
- Research Organization:
- Microeconomic Associates, Berkeley, CA (USA)
- OSTI ID:
- 7097204
- Report Number(s):
- EPRI-EA-700(Vol.2)
- Country of Publication:
- United States
- Language:
- English
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