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

Benoît Sévi

Cahiers du CREDEN (CREDEN Working Papers) from CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1

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.

Keywords: UNCERTAINTY; RISK AVERSION; PRUDENCE; FUTURES MARKETS (search for similar items in EconPapers)
JEL-codes: D21 D81 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2004
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