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Measuring the Benefits from Futures Markets: Conceptual Issues

Author

Listed:
  • Donald Lien

    (Department of Economics, University of Texas at San Antonio, U.S.A.)

  • James Quirk

    (Emeritus Professor, California Institute of Technology, U.S.A.)

Abstract

This paper illustrates that the usual consumer surplus approach to evaluation of the benefits of a futures market fails because of certain unobserved benefits. In particular, when futures markets provide benefits in the form of a reduced variability of future spot prices, the usual consumer surplus approach will systematically understate the benefits of futures markets.

Suggested Citation

  • Donald Lien & James Quirk, 2002. "Measuring the Benefits from Futures Markets: Conceptual Issues," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 1(1), pages 53-58, April.
    • Handle: RePEc:ijb:journl:v:1:y:2002:i:1:p:53-58
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    References listed on IDEAS

    as
    1. Duffie Darrell & Rahi Rohit, 1995. "Financial Market Innovation and Security Design: An Introduction," Journal of Economic Theory, Elsevier, vol. 65(1), pages 1-42, February.
    2. James P. Quirk & Rubin Saposnik, 1962. "Admissibility and Measurable Utility Functions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(2), pages 140-146.
    3. John Geanakoplos & Heracles M. Polemarchakis, 1985. "Existence, Regularity, and Constrained Suboptimality of Competitive Allocations When the Asset Market Is Incomplete," Cowles Foundation Discussion Papers 764, Cowles Foundation for Research in Economics, Yale University.
    4. Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
    5. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
    6. David M. G. Newbery & Joseph E. Stiglitz, 1984. "Pareto Inferior Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 1-12.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Maria Helena Pestana & Artur Parreira & Wan-Chen Wang, 2019. "Bibliometric Analysis and Trends: An Application in Senior Tourism," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(3), pages 329-345, December.

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    More about this item

    Keywords

    futures markets; price variability; consumer surplus;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • G0 - Financial Economics - - General

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