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Safety in conformity but profits deviance

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Durable plant must often be installed before knowing the future price of the variable inputs with which it will be combined. As a result, exante identical firms may adopt different production techniques in industry equilibrium. Strong risk aversion makes this less likely but introduces the possibility of multiple equilibria. Firms then have an incentive to insulate themselves from competitive risk by opting for the same technology as the rest of the industry. With heterogeneous risk preferences it may be the most risk-averse firms that opt for production methods intensive in the input with random price.

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en

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http://eprints.lse.ac.uk/35579/

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