IDEAS home Printed from https://ideas.repec.org/a/eee/jebusi/v49y1997i5p399-418.html
   My bibliography  Save this article

Equilibrium in production and futures markets

Author

Listed:
  • Hennessy, David A.

Abstract

This paper develops a general equilibrium analysis of production and futures markets with free entry/exit. It does so by analyzing partial equilibria with a reference utility level and entry/exit, first in a product market and then in a futures market. The markets are then considered jointly. Comparative statics results arise due to a mismatch between the source of disequilibrium and the compensation mechanism which restores reference utility. Risk aversion is a sufficient structure on preferences to determine most of the results. However, the well-known separation result is modified somewhat in the two-market model. Author Keywords: General equilibrium; Optimal hedge ratio; Separation
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Hennessy, David A., 1997. "Equilibrium in production and futures markets," Journal of Economics and Business, Elsevier, vol. 49(5), pages 399-418.
    • Handle: RePEc:eee:jebusi:v:49:y:1997:i:5:p:399-418
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0148-6195(97)00030-1
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Moschini, Giancarlo & Lapan, Harvey, 1995. "The Hedging Role of Options and Futures under Joint Price, Basis, and Production Risk," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 1025-1049, November.
    2. Ishii, Yasunori, 1989. "Measures of Risk Aversion and Comparative Statics of Industry Equilibrium: Correction," American Economic Review, American Economic Association, vol. 79(1), pages 285-286, March.
    3. Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-548, May/June.
    4. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    5. Appelbaum, Elie & Katz, Eliakim, 1986. "Measures of Risk Aversion and Comparative Statics of Industry Equilibrium," American Economic Review, American Economic Association, vol. 76(3), pages 524-529, June.
    6. Chavas, Jean-Paul & Pope, Rulon D & Leathers, Howard, 1988. "Competitive Industry Equilibrium under Uncertainty and Free Entry," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 331-344, April.
    7. Ormiston, Michael B, 1992. "First and Second Degree Transformations and Comparative Statics under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 33-44, February.
    8. Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-995, December.
    9. Danthine, Jean-Pierre, 1978. "Information, futures prices, and stabilizing speculation," Journal of Economic Theory, Elsevier, vol. 17(1), pages 79-98, February.
    10. Ishii, Yasunori, 1977. "On the Theory of the Competitive Firm under Price Uncertainty: Note," American Economic Review, American Economic Association, vol. 67(4), pages 768-769, September.
    11. Meyer, Jack & Ormiston, Michael B, 1985. "Strong Increases in Risk and Their Comparative Statics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 425-437, June.
    12. repec:bla:econom:v:61:y:1994:i:242:p:137-45 is not listed on IDEAS
    13. Bigelow, John P & Menezes, Carmen F, 1995. "Outside Risk Aversion and the Comparative Statics of Increasing Risk in Quasi-linear Decision Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 643-673, August.
    14. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    15. Davis, George K, 1989. "Income and Substitution Effects for Mean-Preserving Spreads," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 131-136, February.
    16. Honda, Yuzo & Ohta, Hiroshi, 1992. "A Note on Futures Markets with Small Price and Production Risks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 479-486, May.
    17. Gershon Feder & Richard E. Just & Andrew Schmitz, 1980. "Futures Markets and the Theory of the Firm under Price Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(2), pages 317-328.
    18. Feder, Gershon, 1977. "The impact of uncertainty in a class of objective functions," Journal of Economic Theory, Elsevier, vol. 16(2), pages 504-512, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hennessy, David A., 1998. "Industry equilibrium under price distribution and cost shifts," Journal of Economics and Business, Elsevier, vol. 50(6), pages 509-523, November.
    2. Haruna, Shoji, 1996. "Industry equilibrium, uncertainty, and futures markets," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 53-70.
    3. Hennessy, David A., 1998. "Risk Market Innovations and Choice," International Review of Economics & Finance, Elsevier, vol. 7(3), pages 331-341.
    4. Lence, Sergio Horacio, 1991. "Dynamic firm behavior under uncertainty," ISU General Staff Papers 1991010108000010656, Iowa State University, Department of Economics.
    5. Andreas Röthig, 2009. "Microeconomic Risk Management and Macroeconomic Stability," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-642-01565-6, October.
    6. Kit Pong Wong, 2003. "Forward Markets and the Behaviour of the Competitive Firm with Production Flexibility," Bulletin of Economic Research, Wiley Blackwell, vol. 55(3), pages 303-310, July.
    7. Dionne, Georges & Santugini, Marc, 2014. "Entry, imperfect competition, and futures market for the input," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 70-83.
    8. Wong, Kit Pong, 2002. "Production decisions in the presence of options: A note," International Review of Economics & Finance, Elsevier, vol. 11(1), pages 17-25, April.
    9. Hennessy, David A., 1993. "Applications of contingent claims theory to microeconomic problems," ISU General Staff Papers 1993010108000011822, Iowa State University, Department of Economics.
    10. Wong, Kit Pong, 2006. "The effects of abandonment options on operating leverage and forward hedging," International Review of Economics & Finance, Elsevier, vol. 15(1), pages 72-86.
    11. Park, Timothy A. & Antonovitz, Frances, 1991. "Econometric Tests Of Firm Decision Making Under Uncertainty: Optimal Output And Hedging Decisions," 1991 Annual Meeting, August 4-7, Manhattan, Kansas 271264, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Safra, Zvi & Zilcha, Itzhak, 1986. "Firm's hedging behavior without the expected utility hypothesis," Economics Letters, Elsevier, vol. 21(2), pages 145-148.
    13. Eldor, Rafael & Zilcha, Itzhak, 1987. "Discriminating Monopoly, Forward Markets and International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 459-468, June.
    14. Guy Meunier, 2014. "Risk Aversion and Technology Portfolios," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(4), pages 347-365, June.
    15. Geoffrey Turnbull, 1993. "Incentive compatibility and the quantity-setting competitive firm under demand uncertainty," Journal of Economics, Springer, vol. 58(1), pages 77-90, February.
    16. Kit Pong Wong, 2022. "Production and hedging under correlated price and background risks," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 45(1), pages 241-256, June.
    17. Harvey Lapan & Giancarlo Moschini & Steven D. Hanson, 1991. "Production, Hedging, and Speculative Decisions with Options and Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(1), pages 66-74.
    18. Udo Broll & Peter Welzel & Kit Pong Wong, 2024. "Hedging and the regret theory of the firm," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 47(1), pages 259-273, June.
    19. Eldor, Rafael & Zilcha, Itzhak, 1990. "Oligopoly, uncertain demand, and forward markets," Journal of Economics and Business, Elsevier, vol. 42(1), pages 17-26, February.
    20. Wong, Kit Pong, 2007. "Operational and financial hedging for exporting firms," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 459-470.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jebusi:v:49:y:1997:i:5:p:399-418. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-economics-and-business .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.