Equilibrium in Production and Futures Markets

David Hennessy

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: This paper develops a general equilibrium analysis of production and futures markets with free entry/exit. It does so by analyzing partial equilibria with a reference utility level and entry/exit, first in a product market and then in a futures market. The markets are then considered jointly. Comparative statics results arise due to a mismatch between the source of disequilibrium and the compensation mechanism which restores reference utility. Risk aversion is a sufficient structure on preferences to determine most of the results. However, the well-known separation result is modified somewhat in the two-market model. Author Keywords: General equilibrium; Optimal hedge ratio; Separation

Date: 1997-01-01
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Published in Journal of Economics and Business 1997, vol. 49, pp. 399-418

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