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Abstract:
With a constant new stream of financial services coming to the market, each often more exotic and complicated than the last, the financial services industry, which includes commodity derivatives exchanges, brokerage houses and banks providing price risk reduction services (the so-called hedging services), is one of the fastest growing industries. In order to assure survival, these companies show a rapid product innovation. However, for commodity derivatives the risk of failure is considerable. This paper presents a new and integrative approach towards commodity derivatives management, which makes it easier to gain insight into the viability of new commodity derivatives before introduction, to assess and improve the viability of existing commodity derivatives and to provide the managers of the financial services industry with information about the tools they can use in the product development process of commodity derivatives.

Abstract:
We propose a development process of commodity futures contracts in which the decisions and wishes of potential customers are investigated simultaneously with the necessary technical properties that need to be met for trading to take place. Within this framework the relationship between trading volume and hedging effectiveness is examined taking both basis risk and market depth risk into account, and the relationship between owner-manager's characteristics and the probability of using futures is examined, taking latent variables and the heterogeneity of owner-managers into account. The relationships are tested on a set of data gathered in a stratified sample of 440 owner-managers by means of computer-assisted personal interviews and on transaction-specific futures data. Structural equation models and multiple regression models are used to validate the relationships. The hedging effectiveness and the variables that play a role in the owner-manager's use of futures are related to the tools of the exchange.

Abstract:
Two major approaches to measuring risk attitude are compared. One, based on the expected utility model is derived from responses to lotteries and direct scaling. The other measure is a psychometric approach based on Likert statements that produces a unidimensional risk attitude scale. The data are from computer-assisted interviews of 346 owner-managers who made decisions about their own businesses. While the measures demonstrate some degree of convergent validity, the measures based on lotteries predicted actual market behavior better than the psychometric scale. In contrast the psychometric scale showed more coherence with self-reported measures such as innovativeness, market orientation, and the intention to reduce risk. In the light of the apparently higher predictive validity of the lottery-based measurements, we recommend elicitation methods based on the expected utility paradigm for understanding managerial decision making under risk.

Managerial Decision Making Under Risk, Risk Attitude, Utility Theory, Psychometric Scaling, Nomological Validity, Price Risk

Abstract:
Based on measurements among 332 owner-managers (hog farmers), we investigate how the global shape of the utility function (i.e., S-shaped versus concave or convex over the total range of outcomes) relates to choice behavior. We find that the global shape of the utility function differs across decision makers (about one third of the owner-managers exhibit an S-shaped utility function) and that the global shape is linked to organizational behavior (i.e., the production system employed by hog farmers), a result that does not change when using different methods to identify the decision-maker's global shape of the utility function. The decision-maker's risk attitude (risk averse or risk seeking) does not affect the choice of the production system. Whereas the degree of risk aversion, based on the local shape of the utility function, may be important in explaining owner-managers' trading behavior (Pennings and Smidts 2000), more structural organizational behavior appears to be linked to the global shape of the utility function.

Heterogeneity in Utility Functions; Organizational Behavior; S-shaped Utility Function, Real Decision Makers, Reference Points

Abstract:
Based on measurements with 332 owner-managers, the global shape of the utility function (i.e., S-shaped versus concave or convex over the total range of outcomes) appears to discriminate organizational behavior. Whereas the degree of risk aversion, based on the local shape of the utility function, may be important in explaining owner-manager's trading behavior, the global shape of the utility function appears to drive more structural organizational behavior.

organizational behavior, risk aversion, prospect theory, utility theory

Abstract:
By integrating elements of both marketing and finance, we show how risk influences channel contract behavior. We model risk behavior as the interaction between risk attitude and risk perception (IRAP). An analysis of the joint channel decisions of 208 producers, wholesalers, and processors provides three clear results. First, risk attitudes significantly vary across different levels of channel members. Second, IRAP - in combination with the channel member's market structure on the buying and selling side - is a strong predictor of contract behavior. Third, increases in channel power strengthen the impact of IRAP on channel contract behavior.

Marketing Channel, contracts, risk attitude, risk perception

Abstract:
We propose a behavioral decision-making model to investigate what factors, observable as well as unobservable, owner-managers consider regarding futures contract usage. The conceptual model consists of two phases, reflecting the two-stage decision structure of manager's use of futures. In the first phase owner-managers consider whether futures are within the market choice set for the enterprise. In the second phase the owner-manager decides whether or not to initiate a futures position when confronted with a concrete choice situation. In both phases owner-manager's beliefs and perceptions play an important role. The proposed model is tested on a data set of Dutch farmers, based on computer-assisted personal interviews. Because we incorporate latent variables (e.g., perceptions and beliefs) in both phases, we propose an estimation procedure that takes the measurement error of these latent variables explicitly into account. The implications of the behavioral decision-making model for futures contract design are derived.

Abstract:
We investigate factors that drive derivative usage in small and medium-sized enterprises (SMEs). The influence of these factors on hedging behavior cannot a priori be assumed equal for all SMEs. To address this heterogeneity, a generalized mixture regression model is used which classifies firms into segments, so that the hedging response to the determinants of derivative usage is the same within each segment. Using a unique data set of 415 SMEs, containing both accounting and experimental data, we find that factors like risk exposure, risk perception, risk attitude, and the decision-making unit, among others are useful in explaining hedging behavior. However, the effects of these factors are not homogeneous across all managers, and the roots of the heterogeneity can partially be traced to differences in attitudes, perceptions, and to differences in ownership structure.

Derivatives Usage, Hedging Behavior, Unobserved Heterogeneity

Abstract:
In this paper we discuss how our insight into the grounds of existence of futures markets has changed. We discuss futures market research within agricultural marketing, on the one hand, and within finance, on the other hand. The research within these two disciplines may be considered complementary. Subsequently, a new research model is presented which integrates both strains of research. This model is a powerful instrument in the development of new commodity futures contracts. Finally, a future research agenda for agricultural economists is presented.

Agricultural futures markets, hedging theory, research models

Abstract:
Based on recent findings from economics and the neurosciences, we present a conceptual decision-making model that provides insight into human decision-making and illustrates how behavioral outcomes are transformed into phenomena. The model may be viewed as a bridge between the seemingly disparate disciplines of neuroscience and economics that may facilitate more integrative research efforts and provide a framework for developing research agendas for scientists interested in human behavior and economic phenomena.

revealed behavior, economics, neurosciences, synthesis, decision-making model

Abstract:
What drives the behavior of consumers when faced with a product-related crisis, such as that involving food contamination or live-threatening design flaws? For both consumers and companies, these crises have become of increasing importance because of the globalization of markets and an increased coverage by the media. Marketers need to understand why and how consumers react to a crisis. We show that by de-coupling risk response behavior of consumers into the separate components of risk perception and risk attitude, a more robust conceptualization and prediction of consumers' reactions is possible. Such a framework helps to provide answers on how marketers can deal with such type of crises. The merits of this conceptualization are illustrated in two field studies that examine the reactions of German, Dutch, and American consumers to the BSE (madcow disease) crisis.

Consumer reactions, Crisis, Risk Attitude, Risk Perception

Abstract:
What drives the behavior of consumers when faced with a product-related crisis, such as that involving food contamination or live-threatening design flaws? For both consumers and companies, these crises have become of increasing importance because of the globalization of markets and an increased coverage by the media. Marketers need to understand why and how consumers react to a crisis. We show that by de-coupling risk response behavior of consumers into the separate components of risk perception and risk attitude, a more robust conceptualization and prediction of consumers' reactions is possible. Such a framework helps to provide answers on how marketers can deal with such type of crises. The merits of this conceptualization are illustrated in two field studies that examine the reactions of German, Dutch, and American consumers to the BSE (madcow disease) crisis.

Consumer reactions, Crisis, Risk Attitude, Risk Perception

Abstract:
Futures exchanges are in constant search of futures contracts that will generate a profitable level of trading volume. In this context, it would be interesting to determine what effect the introduction of new futures contracts have on the trading volume of the contracts already listed. The introduction of new futures contracts may lead to a volume increase for those contracts already listed and hence, contribute to the success of a futures exchange. On the other hand, the introduction of new futures contracts could lead to a volume decrease for the contracts already listed, thereby undermining the success of the futures exchange accordingly. Using a multi-product hedging model in which the perspective has been shifted from portfolio to exchange management, we study these effects. Using data from two exchanges that are different regarding market liquidity (Amsterdam Exchanges versus Chicago Board of Trade) we show the usefulness of the proposed tool. Our findings have several important implications for a futures exchange's innovation policy.

Abstract:
This paper proposes an interdisciplinary conceptual framework that shows the role of marketing in managing investor relations. The framework complements existing marketing-finance literature by specifically and explicitly focusing on the different dimensions of the relationship between a company and its shareholders and by demonstrating how investor relationships can become market-based assets. The framework provides researchers and firms with tools to analyze and manage investor relations in order to improve financial performance and increase shareholder value. Three real-life scenarios are used to demonstrate the managerial implications of the framework.

Investor Relations, Marketing-Finance, Management, Shareholders

Abstract:
What drives poverty? We propose a research approach to study poverty by focusing on individual decision-making behavior in which the interaction between individual's innovativeness and time preference rate is crucial to begin understanding poverty. This approach enables policy makers to formulate efficient and effective policy and provides economists with an alternative research tool to study poverty.

Poverty, Decision Making Behavior, Research Approach

Abstract:
This paper develops an alternative view on the motivation to hedge. A conceptual model shows how hedging facilitates contract relationships between firms and can solve conflicts between firms. In this model, firms' contract preferences, level of power and conflicts in contractual relationships are driving usage of futures contracts. The model shows how using futures markets can provide a jointly preferred contracting arrangement, thereby enhancing relationships between firms. The robust nature of the conceptual model is empirically examined through a computer-guided study of various firms.

Abstract:
The purpose of this report is to provide a preliminary summary of the results of a survey designed to help answer the questions about subscriber use of market advisory services. Importantly, this research is a cooperative partnership between the University of Illinois and the Data Transmission Network. The survey participants are commercial producers of major grain, oilseed and fiber crops, representing important agricultural areas of the US. The survey has three broad objectives, including 1) how US producers perceive the riskiness of various aspects of farming; 2) how US producers manage farm business risk, and 3) how US producers select and use market advisory services.

Abstract:
Channel contract relations are dynamic. In this paper it is argued that one of the drivers for this dynamism is a firm's strive for shareholder value. Using channel contract relationships as market-based assets, firms are managing a portfolio of spot and forward contract relationships. By exclusively focusing on the cash flow consequences of contract relationships, in the context of an industrial marketing channel, we introduce a decision-oriented, normative, multi-channel dyadic model that shows how channel contract relationships interact, thereby explaining the various contract relationships that exist and the dynamics within these relationships. The model transforms top management's financial objectives into marketing management decisions and guides the decision process of channel members in optimizing the cash flow consequences of channel contract relationships. The properties of the model are illustrated for the meat departments of European retailers.

Cash flows, Channel contract relationships, Marketing-finance interface, risk management

Abstract:
We use the classic agency model to derive a time-varying optimal hedge ratio for low-frequency time-series data: the type of data used by crop farmers when deciding about production and about their hedging strategy. Rooted in the classic agency framework, the proposed hedge ratio reflects the context of both the crop farmer's decision and the crop farmer's contractual relationships in the marketing channel. An empirical illustration for the Dutch ware potato sector and its futures market in Amsterdam over the period 1971 - 2003 reveals that the time-varying optimal hedge ratio decreased from 0.34 in 1971 to 0.24 in 2003. The hedging effectiveness, according to this ratio, is 39%. These estimates conform better with farmers' interest in using futures contracts for hedging purposes than the much higher estimates obtained when price risk minimisation is the only objective considered.

Hedging, Principal-Agent Theory, Time Series, Futures

Abstract:
Mail surveys are a very popular instrument for researchers as well as government agencies and commercial firms to obtain information about farmers. A large percentage of farmers do not respond to these mail surveys. To gain insight into why farmers do not respond and their preferences regarding mail surveys, farmers who did not respond to a mail survey were interviewed. From our field study it appears that a large proportion does not even read the questionnaire. Furthermore, the period in which the survey is sent along with the form and amount of compensation, the sender of the questionnaire, and the length of the questionnaire has a crucial impact on the willingness to participate.

Abstract:
Analysis of a unique data set of 1,400 U.S. crop producers using a mixture-modeling framework shows that the likelihood of Marketing Advisory Services (MAS) use is, among others, driven by the perceived performance of MAS in terms of regarding return and risk reduction, the match between the MAS and the crop producer's marketing philosophy, and the interaction between them. The influence of these factors on crop producers' MAS usage is not homogeneous across crop producers. The heterogeneity is played out in different MAS choices and appears to be driven by crop producers' risk attitudes.

Marketing advisory services, marketing philosophy, mixture model, financial performance, heterogeneity, risk attitudes, crop producers

Abstract:
A large percentage of farmers do not respond to mail surveys. To gain insight into why farmers do not respond and how to improve response rates, a three-step research design was developed. First, an initial survey, based on in-person interviews with 15 farmers, was sent to 100 farmers. Second, farmers who did not respond to this mail survey were contacted by phone to investigate the reasons for not responding. Third, based on the information from these nonrespondents, the survey instrument was revised and sent to 3,990 U.S. farmers. Our studies show that the period in which the survey is sent is a crucial factor in the willingness to participate, along with the form and amount of compensation, the sender of the questionnaire, and the perceived length of the questionnaire.

Abstract:
A conceptual framework was developed that provides insight into the factors affecting the impact of these recommendations on producer pricing decisions. Data from 656 U.S. producers reveal that the perceived performance of the Market Advisory Services (MAS), the way in which MAS recommendations are delivered, as well as the match between MAS and producer's marketing philosophy are important factors explaining the impact of MAS recommendations. Risk attitude does not affect the impact of MAS recommendations on producers' decisions, indicating that producers are more interested in the price-enhancing characteristics of MAS advice than in its risk-reducing features.

Market advisory services, ordered probit model, producers' marketing decisions

Abstract:
We propose a model that explains the choice behavior of small and medium sized enterprises (SMEs) with respect to price risk management instruments, one of them being futures contracts. We relate the key components of the model to characteristics of SMEs, in this way explaining differences between the decision units' evaluations of the financial services provided by futures exchanges. The model is tested on data collected from 467 entrepreneurs of small and medium sized enterprises by means of computer-assisted personal interviews. We find that the difference between the futures price and the entrepreneur's reference price, and the components ease of use, performance and entrepreneurship are the key components in the entrepreneur's choice process with respect to financial services. These key components turn out to be related to the SMEs' characteristics innovativeness, market orientation and level of understanding of price risk management instruments. We discuss how these key components can be influenced through the marketing policy of futures exchanges and how our findings can improve the effective design of futures.

Choice Process, Cognitive Decision Models, Futures, Multivariate Statistics, Structural Equation Models

Abstract:
We investigate factors that drive derivative usage in small and medium-sized enterprises (SMEs). The influence of these factors on hedging behavior cannot a priori be assumed equal for all SMEs. To address this heterogeneity, a generalized mixture regression model is used which classifies firms into segments, so that the hedging response to the determinants of derivative usage is the same within each segment. Using a unique data set of 415 SMEs, containing both accounting and experimental data, we find that factors like risk exposure, risk perception, risk attitude, and the decision-making unit, among others are useful in explaining hedging behavior. However, the effects of these factors are not homogeneous across all managers, and the roots of the heterogeneity can partially be traced to differences in attitudes, perceptions, and to differences in ownership structure.

Derivatives Usage, Hedging Behavior, Unobserved Heterogeneity

Abstract:
In order to assure survival, futures exchanges around the world are in constant search of new futures contracts that will generate a profitable level of trading volume. Introducing new futures contracts may increase or decrease the volume for those contracts already listed. Using a multi-product hedging model in which the perspective has been shifted from portfolio to exchange management, we study these effects. Using data from two exchanges that differ regarding assets traded and market liquidity (Amsterdam Exchanges versus Chicago Board of Trade) we show the usefulness of the proposed method. The method may also be used to evaluate the benefits for exchanges that plan to internationalize their activities by merging with another exchange or by cross listing other exchanges' futures contracts.

Abstract:
The behavior of managers in initiating a derivatives market position brings to the surface an interesting phenomenon: sometimes managers initiate a position in derivatives markets (i.e., futures and options markets) and sometimes they do not, even though the price volatility of the underlying asset has not changed. The current (hedging) models might explain the phenomenon of derivatives position-initiating behavior by assuming changes in the manager's risk attitude and in the volatility of the underlying asset. However, this explanation is not in line with the literature that suggests that risk attitude in a particular domain does not show strong changes within a short time frame. In this paper we try to solve this puzzle by providing a conceptual model that is able to explain the manager's futures contract initiation behavior. The psychological reference price and the futures market price level at the manager's decision moment play a key role in this model. The model is able to explain futures initiation behavior without assuming changing risk attitudes or changing price volatility. Using data from experiments obtained from personal computer-guided interviews conducted with 450 managers, the proposed model is tested with logistic regression on choice probabilities. The manager's risk attitude, the ratio of the futures price level to the manager's psychological reference price and the interaction between them, appear to explain the manager's behavior in initiating a futures position.

Abstract:
The relationship between farmers' behavioral attitudes and use of futures contracts is examined, taking into account non-directly observable variables and the heterogeneity of farmers. The relationships are tested on a stratified data sample of 440 farmers. Cluster analysis and covariance structure equation models are used to validate the relationships. Farmers are found not to be homogenous regarding the factors influencing their use of futures. Heterogeneity at the segment level masked important effects at the aggregate level, notably risk attitude. Furthermore, several psychological constructs for farmers related to market orientation, risk exposure, market performance and entrepreneurial behavior play important roles in their use of futures contracts.

Abstract:
A study was carried out to analyze futures markets for tradable rights after a cash market was initiated. Futures markets can play a role in solving environmental problems by making the market for pollution rights (i.e. P2O5 rights) and agro rights (milk rights, sugar rights and P2O5 rights)more effective and transparent. Moreover, the market for tradable rights would be able to meet the users' need for hedging. This paper investigated the possibility of introducing a futures markets of tradable P2O5 rights and the commodity manure. Because there is already a cash market for manure, although not well-developed yet, and there will be a cash market for P2O5 rights, a futures market is a logical sequel. The futures market can play a role in implementing agricultural policy efficiently, and with respect to manure and P2O5 rights, can be an economically efficient solution to environmental problems.

Abstract:
Markets for natural resource futures contracts and cash forward contracts experience a rapid growth. According to theory, this should result in more efficient resource depletion, implying that price formation is more consistent with Hotelling's rule. The rationale of this stabilizationeffect is briefly discussed. Next, we analyze the impact of expanding futures markets on the behaviour of individual resource owners trading on the cash market. Using a simple pulse extraction model, we demonstrate that the expected time of depletion can shift to the present or the future, and that utility of exploitation can go up or down, as market prices are stabilized.

Abstract:
Markets for resource futures contracts and cash forward contracts experience a rapid growth. According to theory, this should result in more efficient resource depletion, meaning that deviations from the Hotelling price path should decline. Using a very simple model, we show that empirical support for this claim appears to be small. The implications for sustainability are briefly discussed, and a condition is derived that links the issues of efficiency and sustainability. Whether this condition is satisfied will depend on certain characteristics of the resource stock under consideration. In contrast to these (potential) social benefits, reduced price fluctuations bring on a cost for risk neutral resource owners, and resource owners that have a low level of risk aversion. Their expected revenues and utility will decline, which may be considered a negative externality of applying resource price risk management instruments.

Abstract:
Due to the nature of a futures market?s organization, the information dissemination process of futures contract innovations is of great influence on the success of a futures contract. In order to represent the effect of information on the diffusion process of new futures contracts, we propose a model of information dissemination, which includes brokers and customers. The parameters of our model can be linked to the controllable instruments of the exchange.

Abstract:
The literature on rights has paid much attention to the description of rights and the performance of systems of rights. Less has been published on identifying the underlying dimensions of rights, even though such identification seems important for understanding the different types of rights and for classifying them so as to facilitate the process of development that occurs when introducing rights (Miller (1995)). In this article a theoretical framework, which sheds light on the structure of rights, is developed. After examining the characteristics of rights, a correspondence analysis is carried out on existing rights and on a hypothetical ideal right in order to find similarities between them and to identify their underlying structure.

Abstract:
Farms are increasingly being affected by policies that involve production rights. Because of fluctuations in the prices of these rights in the spot market, farmers face a price risk. Establishing a futures market might enable them to hedge against this price risk. Rights futures have some features that differ from those of traditional commodity futures. This make them an effective and efficient tool for managing price risk. The implications of these findings will be illustrated for milk quotas in the United Kingdom and The Netherlands. Prior conditions which might make a futures market for milk quotas successful in both countries will be deduced.

Abstract:
Governments or supranational organizations have begun to introduce environmental rights (such as sulfur dioxide or chlorofluorocarbon rights) and production rights (such as milk and fishery rights) to better link production process costs and results. The authors show that the characteristics of these rights make them quite suitable for futures trading. They are an efficient tool for hedging against adverse fluctuations both in prices of rights and in the profit capacity of complicated production processes.

Abstract:
Introducing a futures market for fishing rights would increase utility for risk averse fishermen. We use the EV model to analyze possible reductions in (expected) profits for futures trading that would make fishermen indifferent between the situation with and without futures markets. It is found that a futures market for fishing rights enables policy makers to pursue substantial cuts in the size of annual quotas without hurting fishermen. In light of current overfishing and pressure from the sector to avoid dramatic cutbacks in effort, this is an important policy result.

Abstract:
The lack of sufficient market depth particularly in many newly initiated futures markets results in relatively high hedging costs, and this inhibits the growth of futures contract volume. In this article the price path due to order imbalances is analyzed and a two-dimensional market depth measure is derived. Understanding the underlying structure of futures market depth provides the management of the futures exchange with a framework for improving their market depth and gives hedgers a better understanding of market depth risk. The managerial implications of our findings are demonstrated empirically using data from the Amsterdam Agricultural Futures Exchange.