Separation and Hedging Results with State‐Contingent Production

Robert G. James and John Quiggan

Economica, 1997, vol. 64, issue 254, 187-209

Abstract: A state‐contingent model of production under uncertainty is developed and compared with more traditional models of production under uncertainty. Producer behaviour with both production and price risk, in the presence and in the absence of futures and forward markets, is analysed in this state‐contingent framework. Conditions for the optimal hedge to be positive or negative are derived. We also show that, under plausible conditions, a risk‐averse producer facing price uncertainty and the ability to hedge price risk will never willingly adopt a non‐stochastic technology. New separation results, which hold in the presence of both price and production risk, are then developed. These separation results generalize Townsend’s spanning results by reducing the number of necessary forward markets by one.

Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://doi.org/10.1111/1468-0335.00073

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:bla:econom:v:64:y:1997:i:254:p:187-209

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0013-0427

Access Statistics for this article

Economica is currently edited by Frank Cowell, Tore Ellingsen and Alan Manning

More articles in Economica from London School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().