Hedging Revisited: Resolving Contractual Conflicts
Office for Futures and Options Research Working Paper No. 00-01
21 Pages Posted: 13 Jul 2000
Date Written: January 2000
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.
JEL Classification: L21, L22
Suggested Citation: Suggested Citation