Demand Uncertainty, Risk Aversion and the Labour‐Managed Firm

Abstract

This article examines the behaviour of a labour‐managed firm operating in a world in which the output price is uncertain, but it varies betwen a price floor and a price ceiling. We show that risk aversion is sufficient to give the direct relationship between a change in uncertainty and the optimal level of output for the labour‐managed firm, which is weaker than the decreasing absolute risk aversion assumption imposed by Hawawini and Michel (1979), Hey and Suckling (1980), Hey (1981a) and Paroush and Kahana (1980).