PRICE CONSTRAINTS,FORWARD MARKETS AND THE COMPETITIVE FIRM UNDER PRICE UNCERTAINTY* |
| |
Authors: | Leonard F S Wang |
| |
Abstract: | This article proposes a model of the competitive firm simultaneously facing price constraints and forward markets under price uncertainty. The incorporation of a forward market is shown to be very important because a risk-averse firm will set its production decision to the forward price regardless of its attitude toward risk. In addition, we show that risk aversion is a sufficient condition for a decrease in risk to reduce the amount hedged when risk is reduced through a mean-preserving price squeeze. |
| |
Keywords: | |
|
|