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Do Futures Benefit Farmers?

  • Lence, Sergio H.

Simulations are used to analyze welfare and market- and farm-level effects of making futures available to producers of a storable commodity. Key features of the model are the explicit consideration of dynamic impacts due to inventories, and of aggregate market effects associated with futures adoption by some producers. Application to the natural rubber market shows that futures availability can lead to sizeable market- and farm-level effects. Futures availability enhances consumer welfare, reduces non-adopter welfare, and yields important welfare gains for adopters when their market share is small and welfare losses when they account for a sufficiently large market share.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p5462-2008-04-19.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12919.

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Date of creation: 19 Apr 2008
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Publication status: Published in American Journal of Agricultural Economics, February 2009, vol. 91 no. 1, pp. 154-167
Handle: RePEc:isu:genres:12919
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Roy Bailey and Marcus Chambers, . "A Theory of Commodity Price Fluctuations," Economics Discussion Papers 432, University of Essex, Department of Economics.
  2. repec:cup:cbooks:9780521326162 is not listed on IDEAS
  3. Sergio H. Lence & Dermot J. Hayes, 2002. "U.S. Farm Policy and the Volatility of Commodity Prices and Farm Revenues," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 335-351.
  4. Geweke, John, 1988. "Antithetic acceleration of Monte Carlo integration in Bayesian inference," Journal of Econometrics, Elsevier, vol. 38(1-2), pages 73-89.
  5. Zant, Wouter, 2001. "Hedging Price Risks of Farmers by Commodity Boards: A Simulation Applied to the Indian Natural Rubber Market," World Development, Elsevier, vol. 29(4), pages 691-710, April.
  6. Kawai, Masahiro, 1983. "Spot and Futures Prices of Nonsotrable Commodities under Rational Expectations," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 235-54, May.
  7. Turnovsky, Stephen J, 1983. "The Determination of Spot and Futures Prices with Storable Commodities," Econometrica, Econometric Society, vol. 51(5), pages 1363-87, September.
  8. Britto, Ronald, 1984. "The Simultaneous Determination of Spot and Futures Prices in a Simple Model with Production Risk," The Quarterly Journal of Economics, MIT Press, vol. 99(2), pages 351-65, May.
  9. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  10. Turnovsky, Stephen J & Campbell, Robert B, 1985. "The Stabilizing and Welfare Properties of Futures Markets: A Simulation Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 277-303, June.
  11. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249, June.
  12. Narayana R. Kocherlakota, 1995. "The equity premium: it's still a puzzle," Discussion Paper / Institute for Empirical Macroeconomics 102, Federal Reserve Bank of Minneapolis.
  13. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
  14. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-82, December.
  15. Williams, Jeffrey C., 2001. "Commodity futures and options," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 13, pages 745-816 Elsevier.
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