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Risk aversion, forward markets and the competitive labor‐managed firm under price uncertainty
Author(s) -
Wang Leonard F. S.,
Bowles David C.
Publication year - 1988
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090090404
Subject(s) - risk aversion (psychology) , forward contract , economics , microeconomics , spot contract , forward price , normal backwardation , ceiling (cloud) , market price , limit price , mid price , production (economics) , financial economics , expected utility hypothesis , price level , monetary economics , physics , meteorology , futures contract
This paper examines the behavior of a labor‐managed co‐operative firm which can sell its output in both spot and forward markets, where the random spot price varies between a price floor and a price ceiling but the forward price is a known parameter. We demonstrate that a risk‐averse labor‐managed firm will base its production decision on the forward market price, and that risk aversion is sufficient to give the direct relationship between a change in uncertainty and the amount hedged in the forward market.