Simulating the Impacts of Contract Supplies in a Spot Market‐Contract Market Equilibrium Setting

16 Pages Posted: 24 Apr 2020

See all articles by Yanguo Wang

Yanguo Wang

College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology

Edward C. Jaenicke

College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology

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Date Written: November 2006

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.

Keywords: captive supplies, contracts, equilibrium models, principal-agent models

Suggested Citation

Wang, Yanguo and Jaenicke, Edward C., Simulating the Impacts of Contract Supplies in a Spot Market‐Contract Market Equilibrium Setting (November 2006). American Journal of Agricultural Economics, Vol. 88, Issue 4, pp. 1062-1077, 2006, Available at SSRN: https://ssrn.com/abstract=3582934 or http://dx.doi.org/10.1111/j.1467-8276.2006.00916.x

Yanguo Wang (Contact Author)

College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology ( email )

University Park, PA 16802-3306
United States

Edward C. Jaenicke

College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology ( email )

University Park, PA 16802-3306
United States

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