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Ramsey pricing in the presence of risk
Author(s) -
Berry S. Keith
Publication year - 1992
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090130204
Subject(s) - economics , marginal cost , microeconomics , arrow , product (mathematics) , risk aversion (psychology) , function (biology) , econometrics , financial economics , expected utility hypothesis , mathematics , geometry , evolutionary biology , computer science , biology , programming language
This article examines Ramsey (second‐best) pricing for a multi‐product regulated monopolist when marginal costs fluctuate with a known probability function. When all marginal‐cost risk is absorbed by consumers, the degrees of Pratt‐Arrow absolute risk aversion and the marginal cost variances in the various markets have an affect on the appropriate Ramsey prices. An analogous result is obtained when investors absorb all of the cost risk. When the cost risk is optimally shared by consumers and investors, the deterministic Ramsey prices are obtained.