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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.

Suggested Citation

  • Hennessy, David A., 1998. "Risk Market Innovations and Choice," Staff General Research Papers Archive 1205, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:1205
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    References listed on IDEAS

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    Cited by:

    1. Zein Kallas & Teresa Serra & José M. Gil, 2012. "Effects of policy instruments on farm investments and production decisions in the Spanish COP sector," Applied Economics, Taylor & Francis Journals, vol. 44(30), pages 3877-3886, October.

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