The Competitive Firm under both Input and output Price Uncertainties with Futures Markets and Basis Risks

Abstract

We study the case of a competitive firm exposed to both input and output price risk. In an expected utility framework, we elicit the separation theorem, and show the positive impact of derivatives markets on the optimal output. We also show that in the case of several inputs, the risk-averse firm accord a certainty premium to the most certain input.UNCERTAINTY;RISK AVERSION; PRUDENCE; FUTURES MARKETS