Simulating the impacts of contract supplies in a spot market-contract market equilibrium setting

Yanguo Wang, Edward C. Jaenicke

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

This article embeds a principal-agent model within a market equilibrium model of contract and cash markets to analyze the impact of contracting on the spot market for hogs. The equilibrium model incorporates both quality differentiation in the contract market and an endogenously determined cash market price. For three types of contracting scenarios, market equilibrium conditions are derived, and results are presented for a numerical example. Contrary to some empirical results, our model shows that the increased supply of hogs under typical formula-price contracts can increase or decrease the cash market price, depending on the relative size of overall contract supplies.

Original languageEnglish (US)
Pages (from-to)1062-1077
Number of pages16
JournalAmerican Journal of Agricultural Economics
Volume88
Issue number4
DOIs
StatePublished - Nov 1 2006

All Science Journal Classification (ASJC) codes

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

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