Contracting, Signaling of Uncertain Quality, and Price Volatility?

Ming-Chin Chin and Robert Weaver

No 24790, 2002 International Congress, August 28-31, 2002, Zaragoza, Spain from European Association of Agricultural Economists

Abstract: Theoretical and simulation results clarify the role of forward procurement contracting as a determinant of spot price levels and volatility. A stylized model determines market share across quality when procurers forward contract to manage quality risk. Actual supply is specified as price dependent and stochastic. Simulation examines sensitivity of spot price level and volatility to extent of forward contracting, risk aversion, and ability to adjust spot market demand (recontracting). The results show that as forward contracting increases mean spot price decreases and variance increases. This effect increases as risk aversion decreases and as the extent of recontracting adjustment in spot demand decreases.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 18
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/24790/files/cp02we14.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae02:24790

DOI: 10.22004/ag.econ.24790

Access Statistics for this paper

More papers in 2002 International Congress, August 28-31, 2002, Zaragoza, Spain from European Association of Agricultural Economists Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().