Theory of the Firm with Joint Price and Output Risk and a Forward Market

Dwight Grant

American Journal of Agricultural Economics, 1985, vol. 67, issue 3, 630-635

Abstract: Expected utility maximizing farmers facing just price risk or both price risk and quantity risk behave similarly in the absence of a forward market. If forward contracting is possible, that is not true because variation in the commodity price affects a farmer's wealth through the value of his futures position, the value of his output and through the covariance between price and output. This covariance affects a farmer's optimal scale of production, his optimal forward position and the interrelationship between the scale of production and forward trading.

Date: 1985
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