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Bilateral Forward Contracts and Spot Prices

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  • Nodir Adilov

Abstract

Allaz and Vila (1993) have shown that forward markets could mitigate market power and improve efficiency. This paper shows that efficiency-improving effect of forward markets is sensitive to the assumption that market participants behave like rational expectations agents when forecasting prices. The existence of forward contracts could increase spot prices and hurt efficiency if buyers engage in bilateral forward contracts and forward rates are influenced by historic prices. These findings have important policy implications for the electricity industry.

Suggested Citation

  • Nodir Adilov, 2010. "Bilateral Forward Contracts and Spot Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 67-82.
    • Handle: RePEc:aen:journl:2010v31-03-a04
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    Cited by:

    1. Wolf-Peter Schill & Claudia Kemfert, 2011. "Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 59-88.
    2. Paulo Cesar Coutinho & Andre Rossi de Oliveira, 2013. "Trading Forward in the Brazilian Electricity Market," International Journal of Energy Economics and Policy, Econjournals, vol. 3(3), pages 272-287.

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    JEL classification:

    • F0 - International Economics - - General

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