SIMULATING THE IMPACTS OF CONTRACT SUPPLIES IN A SPOT MARKET-CONTRACT MARKET EQUILIBRIUM SETTING

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 processor-producer 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.


Subject(s):
Issue Date:
2004
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/20313
Total Pages:
28
Series Statement:
Selected Paper




 Record created 2017-04-01, last modified 2017-08-24

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