Issue: 2013/Vol.23/No.1, Pages 29-35
EXCHANGE OF GOODS WHILE INVESTING INTO PRODUCTION AND SAFETY
Kjell Hausken
Cite as: K. Hausken. Exchange of goods while investing into production and safety. Operations Research and Decisions 2013: 23(1), 29-35. DOI 10.5277/ord130103
Abstract
The tradeoff between production and safety investment is scrutinized for two agents who convert resources into production and safety investment while simultaneously exchanging goods voluntarily. We quantify how two Cobb–Douglas parameters, one scaling production versus safety, and the other scaling the relative importance of two goods, impact two agents’ production, safety effort, incomes, export, import, price, and utilities. An agent’s income from producing a good reaches a maximum for an intermediate value of the Cobb–Douglas parameter that scales the importance of productive effort relative to safety effort. The price of good 2 in terms of good 1, and the agents’ utilities depend on both the Cobb–Douglas parameters, the productivity parameter, and both agents’ resources and unit costs of production and safety effort.
Keywords: production, safety, exchange, risk, trade, price
Received: Accepted: