The Competitive Firm Under Price Uncertainty: The Role of Information and Hedging

Udo Broll and Bernhard Eckwert

No 12/07, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: We study the impact of transparency in a commodity market on the decision problem of a competitive firm under price uncertainty and hedging opportunities. Market transparency is modeled by means of the informational content of publicly observable signals which are correlated with the random price. We find that the impact of more transparency on labor employment and production depends on the firm's technology. Inparticular, more transparency may result in lower average output even though on average more labor has been used in the production process. We also analyze the link between market transparency and the welfare of the firm.

Keywords: Transparency; information system; price uncertainty; hedging; competitive firm (search for similar items in EconPapers)
JEL-codes: L21 L23 L25 (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuddps:1207

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