Non-Performance Risk and Transaction Costs in Laboratory Forward and Spot Markets

Posted: 28 Sep 2006

See all articles by Alla V. Yakunina

Alla V. Yakunina

Saint Petersburg State University of Economics and Finance

Dale J. Menkhaus

University of Wyoming

Owen R. Phillips

University of Wyoming - College of Business - Department of Economics and Finance

Victor E. Esipov

St. Petersburg State University of Economics & Finance

Abstract

Traders choose to participate in forward or spot auctions having some probability of contract non-performance in the forward market with no associated real cost or with a transaction cost levied randomly on a forward trade. Results from laboratory markets suggest that the spot market becomes a backstop to failed units in the forward market. Forward market activity is particularly sensitive to increased transaction costs. An increase of about 6% for each trader shifts about 40% of all sales to a spot market. If institutions are ineffective in enforcing forward contracts, a spot outlet is essential for exchange to continue.

Keywords: Experimental economics, Contract non-performance, Transaction costs

JEL Classification: C92, D23, D44, D80

Suggested Citation

Yakunina, Alla V. and Menkhaus, Dale J. and Phillips, Owen R. and Esipov, Victor E., Non-Performance Risk and Transaction Costs in Laboratory Forward and Spot Markets. Journal of Comparative Economics, Vol. 31, No. 2, June 2003, Available at SSRN: https://ssrn.com/abstract=931425

Alla V. Yakunina (Contact Author)

Saint Petersburg State University of Economics and Finance ( email )

Sadovaya st. 21
Saint Petersburg, 191023

Dale J. Menkhaus

University of Wyoming ( email )

Box 3434 University Station
Department of Applied Agricultural Economics
Laramie, WY 82071
United States
307-766-5128 (Phone)
307-766-5544 (Fax)

Owen R. Phillips

University of Wyoming - College of Business - Department of Economics and Finance ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States
307-766-2195 (Phone)
307-766-5090 (Fax)

Victor E. Esipov

St. Petersburg State University of Economics & Finance ( email )

21 St. Petersburg
Department of Pricing
191023
Russia
(812) 3103694 (Phone)

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