This paper examines the interplay between the real and financial decisions of the competitive firm `a la Sandmo. Besides output price uncertainty, the firm faces additional sources of risk which are aggregated into an additive background risk. We show that the firm always chooses its optimal...

We examine the economic behavior of the regret-averse firm under price uncertainty. We show that the global and marginal effects of price uncertainty on production are both positive (negative) when regret aversion prevails if the random output price is positively (negatively) skewed. In this...