The competitive firm under price uncertainty: the role of information and hedging |
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Authors: | Udo Broll Bernhard Eckwert |
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Institution: | (1) Department of Economics, Dresden University of Technology, Dresden, Germany;(2) Department of Economics, Bielefeld University, Bielefeld, Germany |
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Abstract: | We study the impact of transparency in a commodity market on the decision problem of a competitive firm under price uncertainty
and hedging opportunities. Market transparency is modeled by means of the informational content of publicly observable signals
which are correlated with the random price. We find that the impact of more transparency on labor employment and production
depends on the firm’s technology. In particular, more transparency may result in lower average output even though on average
more labor has been used in the production process. We also analyze the link between market transparency and the welfare of
the firm.
We are grateful to two anonymous referees who made extremely useful comments and suggestions. |
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Keywords: | L21 L23 L25 |
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