Working Paper: NBER ID: w26535
Authors: John H. Cochrane
Abstract: 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.
Keywords: Production; Asset Pricing; Uncertainty; Productivity
JEL Codes: G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| productivity shocks (O49) | asset prices (G19) |
| contingent claim prices (G13) | production decisions (L23) |
| production decisions (L23) | asset pricing (G19) |
| productivity distribution (D39) | production decisions (L23) |
| technology shocks (D89) | stock prices (G12) |
| productivity shocks (O49) | economic output (E23) |