Risk aversion, forward markets and the competitive labor-managed firm under price uncertainty

This paper examines the behavior of a labor-managed co-operative firm which can sell its output in both spot and forward markets, where the random spot price varies between a price floor and a price ceiling but the forward price is a known parameter. We demonstrate that a risk-averse labor-managed f...

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Bibliographic Details
Published in:Managerial and decision economics 1988-12, Vol.9 (4), p.275-278
Main Authors: Wang, Leonard F. S., Bowles, David C.
Format: Article
Language:English
Subjects:
Assumption of risk
Comparative economics
Competitive firms
Economic uncertainty
Expected utility
Financial risk
Futures market
Hedging
Market prices
Mathematical models
Price ceilings
Prices
Pricing policies
Production cooperatives
Production management
Profit maximization
Profits
Risk aversion
Risk management
Spot
Uncertainty
Utility functions
Wage & price controls
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Summary:This paper examines the behavior of a labor-managed co-operative firm which can sell its output in both spot and forward markets, where the random spot price varies between a price floor and a price ceiling but the forward price is a known parameter. We demonstrate that a risk-averse labor-managed firm will base its production decision on the forward market price, and that risk aversion is sufficient to give the direct relationship between a change in uncertainty and the amount hedged in the forward market.
ISSN:0143-6570
1099-1468
DOI:10.1002/mde.4090090404