Simulating the Impacts of Contract Supplies in a Spot Market - Contract Market Equilibrium Setting
نویسندگان
چکیده
This paper embeds a principal-agent model of producer-processor equilibrium within a market equilibrium model of contract and cash markets to analyze the impact of contracting on the spot market for hogs. The principal-agent model incorporates both quality differentiation in the contract market and an endogenously determined cash market price to account for processorproducer relationships in equilibrium. For five types of contracting scenarios, market equilibrium conditions are derived, and results are presented for a numerical example. Contrary to previous results, the paper finds that the increased supply of hogs under typical formula-price contracts can increase the cash market price and reduce its variance. Copyright 2004 by Yanguo Wang and Edward C. Jaenicke. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.
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