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Reservation Prices on Credit Use: A Measure of Response to Uncertainty
Author(s) -
Barry Peter J.,
Baker C. B.
Publication year - 1971
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1237435
Subject(s) - reservation , market liquidity , economics , measure (data warehouse) , microeconomics , reservation price , monetary economics , econometrics , business , actuarial science , computer science , database , computer network
Liquidity in the form of reserved credit is valuable to a business manager because it is available to counter uncertain expectations. This paper investigates the definition and method of estimating values or reservation prices associated with firm liquidity provided by unused credit. A multiperiod linear programming model is taken to reflect the behavior of decision makers in empirically observed situations. Credit reservation prices of decision makers were inferred by comparing growth information for real borrowers with growth information generated by the comparable model at alternative reservation prices. This method succeeded in associating a high credit reservation price with the conservative borrower and low credit reservation prices with a more liberal borrower.