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Insurance, Flexibility and Non-contingent Trades

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  • Russell Cooper
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    Abstract

    This paper considers non-contingent trades through either forward markets or simple contracts. The point of the inquiry is to understand the costs and benefits of trades of this nature. We focus on the tradeoff between insurance (a benefit) and the loss of flexibility in decisions (a cost) as determining properties of trading in forward markets. This tradeoff is also used to explore contract length.

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    File URL: http://cowles.econ.yale.edu/P/cd/d06b/d0691.pdf
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    Bibliographic Info

    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 691.

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    Length: 33 pages
    Date of creation: Feb 1984
    Date of revision:
    Handle: RePEc:cwl:cwldpp:691

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    Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
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    Web page: http://cowles.econ.yale.edu/
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    Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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    1. Baron, David P, 1970. "Price Uncertainty, Utility, and Industry Equilibrium in Pure Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 463-80, October.
    2. Turnovsky, Stephen J, 1974. "Technological and Price Uncertainty in a Ricardian Model of International Trade," Review of Economic Studies, Wiley Blackwell, vol. 41(2), pages 201-17, April.
    3. Stiglitz, Joseph E, 1982. "The Inefficiency of the Stock Market Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 241-61, April.
    4. Gray, Jo Anna, 1978. "On Indexation and Contract Length," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 1-18, February.
    5. Azariadis, Costas & Cooper, Russell, 1985. "Predetermined Prices and the Allocation of Social Risks," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 495-518, May.
    6. Eaton, Jonathan, 1980. "Price Variability, Utility and Savings," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 513-20, April.
    7. Eaton, Jonathan, 1979. "The Allocation of Resources in an Open Economy with Uncertain Terms of Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 391-403, June.
    8. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December.
    9. Yohe, Gary Wynn, 1977. "Comparisons of price and quantity controls: A survey," Journal of Comparative Economics, Elsevier, vol. 1(3), pages 213-233, September.
    10. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
    11. Batra, Raveendra N & Russell, William R, 1974. "Gains from Trade Under Uncertainty," American Economic Review, American Economic Association, vol. 64(6), pages 1040-48, December.
    12. 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.
    13. Grossman, Sanford J., 1977. "A characterization of the optimality of equilibrium in incomplete markets," Journal of Economic Theory, Elsevier, vol. 15(1), pages 1-15, June.
    14. Dionne, G., 1981. "Adverse Selection and Repeated Insurance Contracts," Cahiers de recherche 8139, Universite de Montreal, Departement de sciences economiques.
    15. Arrow, Kenneth J, 1974. "Limited Knowledge and Economic Analysis," American Economic Review, American Economic Association, vol. 64(1), pages 1-10, March.
    16. Townsend, Robert M, 1978. "On the Optimality of Forward Markets," American Economic Review, American Economic Association, vol. 68(1), pages 54-66, March.
    17. Ross, Stephen A, 1981. "Some Stronger Measures of Risk Aversion in the Small and the Large with Applications," Econometrica, Econometric Society, vol. 49(3), pages 621-38, May.
    18. Russell Cooper & Beth Hayes, 1983. "Multiperiod Insurance Contracts," Cowles Foundation Discussion Papers 673R, Cowles Foundation for Research in Economics, Yale University, revised 1984.
    19. Goldman, Steven Marc, 1974. "Flexibility and the demand for money," Journal of Economic Theory, Elsevier, vol. 9(2), pages 203-222, October.
    20. Radner, Roy, 1981. "Monitoring Cooperative Agreements in a Repeated Principal-Agent Relationship," Econometrica, Econometric Society, vol. 49(5), pages 1127-48, September.
    21. Harris Milton & Townsend, Robert M, 1981. "Resource Allocation under Asymmetric Information," Econometrica, Econometric Society, vol. 49(1), pages 33-64, January.
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