Advanced Search
MyIDEAS: Login to save this paper or follow this series

Fixed Price Versus Spot Price Contracts: A Study in Risk Allocation

Contents:

Author Info

  • A. Mitchell Polinsky

Abstract

Thi spaper is concerned with the risk-allocation effects of alternative types of contracts used to set the price of a good tobe delivered in the future. Under a fixed price contract, the price is specified in advance. Under a spot price contract, the price is the price prevailing in the spot market at the time of delivery.These contract forms are examined in the context of a market in which sellers have uncertain production costs and buyers have uncertain valuations. The paper derives and interprets a general condition determining which contract form would be preferred when the seller and/or the buyer is risk averse. In addition, an example is provided in which a spot price contract with a floor price is superior both to a "pure" spot price contract and a fixed price contract.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w1817.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1817.

as in new window
Length:
Date of creation: Jan 1986
Date of revision:
Publication status: published as Polinsky, A. Mitchell. "Fixed Price versus Spot Price Contracts: A Study in Risk Allocation," Journal of Law, Economics, and Organization, Vol. 3, No. 1, (Spring 1987), pp. 27-46.
Handle: RePEc:nbr:nberwo:1817

Note: EFG
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Alan J. Marcus, 1982. "Risk Sharing and the Theory of the Firm," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(2), pages 369-378, Autumn.
  2. Shavell, Steven, 1976. "Sharing Risks of Deferred Payment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(1), pages 161-68, February.
  3. Ronald I. McKinnon, 1967. "Futures Markets, Buffer Stocks, and Income Stability for Primary Producers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 844.
  4. Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, American Economic Association, vol. 69(5), pages 989-95, December.
  5. H. Stuart Burness & W. David Montgomery & James P. Quirk, 1980. "The Turnkey Era in Nuclear Power," Land Economics, University of Wisconsin Press, vol. 56(2), pages 188-202.
  6. Paul Joskow, 1984. "Vertical Integration and Long Term Contracts: The Case of Coal Burning Electric Generating Plants," Working papers 361, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. J.K. Sebenius & P.J.E. Stan, 1982. "Risk-Spreading Properties of Common Tax and Contract Instruments," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(2), pages 555-560, Autumn.
  8. Cheung, Steven N S, 1969. "Transaction Costs, Risk Aversion, and the Choice of Contractual Arrangements," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 12(1), pages 23-42, April.
  9. 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, MIT Press, vol. 94(2), pages 317-28, March.
  10. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(398), pages 1065-82, December.
  11. Yakov Amihud & Baruch Lev, 1981. "Risk Reduction as a Managerial Motive for Conglomerate Mergers," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 12(2), pages 605-617, Autumn.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1817. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.