The Risk-Averse (and Prudent) Newsboy
Louis Eeckhoudt, Christian Gollier, Harris Schlesinger
Management Science · 1995 · Volume 41 · Issue 5
Abstract
The effects of risk and risk aversion in the single-period inventory (“newsboy”) problem are examined. Comparative-static effects of changes in the various price and cost parameters are determined and related to the newsboy's risk aversion. The addition of a random background wealth and of an increase in the riskiness of newspaper demand are also examined. Although many of the comparative effects generally are ambiguous, some fairly simple restrictions on preferences and/or risk increases are shown to lead to qualitatively deterministic results.
Keywords
newsboy problem, inventory, increase in risk, risk aversion, prudence
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