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The Competitive Firm under both Input and output Price Uncertainties with Futures Markets and Basis Risks

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  • Sevi, B.

Abstract

We study the case of a competitive firm exposed to both input and output price risk. In an expected utility framework, we elicit the separation theorem, and show the positive impact of derivatives markets on the optimal output. We also show that in the case of several inputs, the risk-averse firm accord a certainty premium to the most certain input.

Suggested Citation

  • Sevi, B., 2004. "The Competitive Firm under both Input and output Price Uncertainties with Futures Markets and Basis Risks," Cahiers du CREDEN (CREDEN Working Papers) 04.01.44, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
    • Handle: RePEc:mop:credwp:04.01.44
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    File URL: http://www.creden.univ-montp1.fr/downloads/cahiers/CC-04-01-44.pdf
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    References listed on IDEAS

    as
    1. Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-548, May/June.
    2. Benninga, Simon & Eldor, Rafael & Zilcha, Itzhak, 1983. "Optimal hedging in the futures market under price uncertainty," Economics Letters, Elsevier, vol. 13(2-3), pages 141-145.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    UNCERTAINTY; RISK AVERSION; PRUDENCE; FUTURES MARKETS;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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