Fixed Price Versus Spot Price Contracts: A Study in Risk Allocation / A. Mitchell Polinsky.

Format:

Book

Author/Creator:

Polinsky, A. Mitchell.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1817.

NBER working paper series no. w1817

Language:

English

Subjects (All):

Contracts.

Prices--Mathematical models.

Prices.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Fixed Price Versus Spot Price Contracts

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1986.

Cambridge, Massachusetts : National Bureau of Economic Research, 1986.

Summary:

Thi spaper is concerned with the risk-allocation effects of alternative types of contracts used to set the price of a good tobe delivered in the future. Under a fixed price contract, the price is specified in advance. Under a spot price contract, the price is the price prevailing in the spot market at the time of delivery.These contract forms are examined in the context of a market in which sellers have uncertain production costs and buyers have uncertain valuations. The paper derives and interprets a general condition determining which contract form would be preferred when the seller and/or the buyer is risk averse. In addition, an example is provided in which a spot price contract with a floor price is superior both to a "pure" spot price contract and a fixed price contract.

Notes:

Print version record

1986.