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Article: Forward markets and the behaviour of the competitive firm with production flexibility

TitleForward markets and the behaviour of the competitive firm with production flexibility
Authors
KeywordsForward markets
Production flexibility
Issue Date2003
PublisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/BOER
Citation
Bulletin Of Economic Research, 2003, v. 55 n. 3, p. 303-310 How to Cite?
AbstractThis paper examines the production and hedging decisions of the competitive firm under output price uncertainty when a forward market for its output is available. The firm possesses production flexibility in that it makes its production decision after the resolution of the output price uncertainty, albeit subject to a capacity constraint on production. We show that the firm optimally acquires a higher level of capacity investment than an otherwise identical firm with no production flexibility. We further show that production flexibility allows the firm to implicitly hedge against its output price risk exposure by the ex post production decision. The firm as such underhedges its output price risk exposure in the forward market wherein the forward price contains a non-positive risk premium.
Persistent Identifierhttp://hdl.handle.net/10722/85583
ISSN
2015 Impact Factor: 0.261
2015 SCImago Journal Rankings: 0.280
SSRN
References

 

DC FieldValueLanguage
dc.contributor.authorWong, KPen_HK
dc.date.accessioned2010-09-06T09:06:50Z-
dc.date.available2010-09-06T09:06:50Z-
dc.date.issued2003en_HK
dc.identifier.citationBulletin Of Economic Research, 2003, v. 55 n. 3, p. 303-310en_HK
dc.identifier.issn0307-3378en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85583-
dc.description.abstractThis paper examines the production and hedging decisions of the competitive firm under output price uncertainty when a forward market for its output is available. The firm possesses production flexibility in that it makes its production decision after the resolution of the output price uncertainty, albeit subject to a capacity constraint on production. We show that the firm optimally acquires a higher level of capacity investment than an otherwise identical firm with no production flexibility. We further show that production flexibility allows the firm to implicitly hedge against its output price risk exposure by the ex post production decision. The firm as such underhedges its output price risk exposure in the forward market wherein the forward price contains a non-positive risk premium.en_HK
dc.languageengen_HK
dc.publisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/BOERen_HK
dc.relation.ispartofBulletin of Economic Researchen_HK
dc.rightsBulletin of Economic Research. Copyright © Blackwell Publishing Ltd.en_HK
dc.subjectForward marketsen_HK
dc.subjectProduction flexibilityen_HK
dc.titleForward markets and the behaviour of the competitive firm with production flexibilityen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0307-3378&volume=55&spage=303&epage=310&date=2004&atitle=Forward+Markets+and+the+Behavior+of+the+Competitive+Firm+with+Production+Flexibilityen_HK
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_HK
dc.identifier.authorityWong, KP=rp01112en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1111/1467-8586.00177-
dc.identifier.scopuseid_2-s2.0-0042312546en_HK
dc.identifier.hkuros92191en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-0042312546&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume55en_HK
dc.identifier.issue3en_HK
dc.identifier.spage303en_HK
dc.identifier.epage310en_HK
dc.publisher.placeUnited Kingdomen_HK
dc.identifier.ssrn418825-
dc.identifier.scopusauthoridWong, KP=7404759417en_HK

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