|
During recent years the firm(s behaviors about production, risk management, insurance and financial benefits decision under uncertain capital service has been fervently studied. Most of the studies addressed this issue with separately or individual attitude toward risk of underlying assumptions. This paper examines the integrated model of the decision behaviors under the firm facing uncertain capital service and various input markets in the interaction of above decision. We can obtain some results that are more integrated than those examined in some other related paper. Under uncertain capital service, the risk-averse and risk-neutral firms willemploy capital less than they do under certainty. And, the risk-averse firm invests less input and produces less output than the risk-neutral firm. An increases in the level of loss prevention activities may lead to an increases inthe volumes of capital whether the risk-averse or risk-neutral firms. In addition, we find that if the price of insurance were actuarial premium rate, then insurance and loss prevention decisions are irrelevant to the production decisions. On the other hand, if the price of insurance were unactuarial premium rate, then insurance and loss prevention decisions are relevant to the production decisions. The type of coinsurance policy is better choice when the risks that are low frequency / large severity and the type of deductible policy is better choice when the risks that are high frequency / small severity. Finally, the firms produces financial benefits that reflect the gain from taxdeductibility of insurance premiun and prevention activities more than of prevention activities only.
|