WE ipropose to outline a method for deriving optimal rules of inventory policy for finished goods. The problem of inventories exists not only for business enterprises but also for nonprofit agencies such as governmental establishments and their various branches. Moreover, the concept of inventories can be generalized so as to include not only goods but also disposable reserves of manpower as well as various stand-by devices. Also, while inventories of finished goods present the simplest problem, the concept can be extended to goods which can be transformed, at a cost, into one or more kinds of finished goods if and when

Kenneth J. Arrow, Phillip Cagan, Irwin Friend, Comments on Duesenberry's The Portfolio Approach to the Demand for Money and Other Assets, The Review of Economics and Statistics, Vol. 45, No. 1, Part 2, Supplement (Feb., 1963), pp. 24-31

A number of recent contributions by economists have provided a clear insight into the causes of the varied forms of environmental deterioration, and have also suggested, implicitly or explicitly, policies for more efficient management of environmental as well as other resources.1 Yet, as Allen Kneese has pointed out in a review of empirical studies of pollution damages, “a general shortcoming of [these studies] has been that they have treated a stochastic or probabilistic phenomenon as being deterministic.”2 The purpose of this paper is to explore the implications of uncertainty surrounding estimates of the environmental costs of some economic activities. It is shown in particular that the existence of uncertainty will, in certain important cases, lead to a reduction in net benefits from an activity with environmental costs. In such cases the implication for an efficient control policy will generally involve some restriction of the activity.