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Risk Market Innovations and Choice

  • Hennessy, David A.

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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File URL: http://www.sciencedirect.com/science/article/B6W4V-46K9821-G/2/7c69f5ca42623c2e85c0dee89bb39945
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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 7 (1998)
Issue (Month): 3 ()
Pages: 331-341

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Handle: RePEc:eee:reveco:v:7:y:1998:i:3:p:331-341
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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  8. Moschini, GianCarlo & Lapan, Harvey E., 1992. "Hedging Price Risk with Options and Futures for the Competitive Firm with Production Flexibility," Staff General Research Papers 10043, Iowa State University, Department of Economics.
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  16. Kraus, Marvin, 1979. "A comparative statics theorem for choice under risk," Journal of Economic Theory, Elsevier, vol. 21(3), pages 510-517, December.
  17. 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.
  18. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
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