Journal of Agricultural and Resource Economics (Dec 1999)

Endogenous Choice of Institution under Supply and Demand Risks in Laboratory Forward and Spot Markets

  • Dale J. Menkhaus,
  • Christopher T. Bastian,
  • Owen R. Phillips,
  • Patrick D. O'Neill

DOI
https://doi.org/10.22004/ag.econ.30793
Journal volume & issue
Vol. 24, no. 2
pp. 553 – 571

Abstract

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Laboratory methods are used to investigate the impacts of supply and demand risks in a forward market on prices, quantities traded, and earnings when the choice of transacting in a forward or spot market is endogenous. Forward market activity dominates spot trading, with 80-90% of the trades taking place in the forward market regardless of how risk arises. Buyer earnings tend to be higher than earnings for sellers when there is risk. A correspondence exists between risk type and the relative increase in buyer earnings. Buyer earnings increase significantly when demand is random, and also when both supply and demand are random.

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