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Risk Market Innovations and Choice

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  • Hennessy, David A.

Abstract

This paper presents a general model of firm behavior in a risky environment when a risk management contract becomes available. While separation cannot be invoked, conclusions can still be drawn. Under nonincreasing absolute risk aversion (NIARA), the innovation increases production. An increase in wealth will either increase production or decrease contract use or both. Increases in contract premium and factor prices are found to decrease optimal input choice if the wealth effect is normal.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1205.

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Date of creation: 01 Mar 1998
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Publication status: Published in International Review of Economics and Finance, March 1998, vol. 7 no. 3, pp. 331-341
Handle: RePEc:isu:genres:1205

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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References

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  14. Hans Binswanger, 1981. "Attitudes toward risk: Theoretical implications of an experiment in rural india," Artefactual Field Experiments 00010, The Field Experiments Website.
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  17. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
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  19. Feder, Gershon & Just, Richard E & Schmitz, Andrew, 1980. "Futures Markets and the Theory of the Firm under Price Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 317-28, March.
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Cited by:
  1. Kallas, Zein & Serra, Teresa & Gil, Jose Maria, 2009. "Effects Of Policy Instruments On Farm Investments And Production Decisions In The Spanish Cop Sector," 2009 Conference, August 16-22, 2009, Beijing, China 49971, International Association of Agricultural Economists.

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