Risk aversion, forward markets and the competitive labor‐managed firm under price uncertainty | Zendy

Wang Leonard F. S. | Zendy; Bowles David C. | Zendy

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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.

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