Lehman B. Fletcher

From Hedging to Pure Speculation: A Micro Model of Optimal Futures and Cash Market Positions

A theoretical model of optimal firm decisions in cash and futures markets that includes both primary product producers and marketing firms is presented. The generalized model of production and marketing decisions under risk is applied to both short and long hedging and speculation. Hedging and speculation are given precise definitions. Speculation exists when a firms futures position exceeds the 100 percent hedging level or when it does not provide hedging possibilities in conjunction with the cash market position. Comparisons between hedging on futures markets and forward contracting are made. Live beef futures are used to show how transformation costs for nonstorable commodities should be treated in the same manner as storage costs for storable commodities.

A Cobb-Douglas Production Function with Variable Returns to Scale

T HE OBJECTIVE of this paper is to present a production function with variable returns to scale over the range of the function. A modified form of the Cobb-Douglas function is developed for this purpose. Data from a sample of farms are used to estimate the parameters of the modified function utilizing single-stage least-squares estimation. The empirical results are presented and some implications of the estimated elasticities of production are discussed. Many attempts have been made in the past to find algebraic forms that are theoretically appropriate and empirically useful for describing and estimating the functional relationships between inputs and outputs [7]. Each alternative functional form has advantages, but each usually imposes certain limitations on the input-output relationship. The conventional Cobb-Douglas function, for example, assumes unitary elasticity of factor substitution and partial and total production elasticities that do not vary over ,the range of the function. Recent efforts to develop more general forms of production functions have focused almost exclusively on the elasticity of factor substitution. Examples of such efforts include the constant elasticity of substitution function [1], the class of homothetic isoquant production functions [2], transcendental production functions [5], and the variable elasticity of substitution production function [6]. These new functional forms elevate the elas-

Unequal wealth accumulation and income inequality in a unimodal agriculture: Sudan's Radad irrigation scheme

Patterns of income, savings, and wealth accumulation of tenant farmers in the Rahad irrigation scheme of Sudan were examined. Although land and irrigation water are publicly owned and equally distributed in these schemes, unequal access to capital was found to influence strongly the distribution of family income and the saving and accumulation capacities of the tenant farmers. Analysis using Lorenz curves and Gini coefficients revealed a high positive correlation between wealth and family income. The average wealth gap between poor and rich households increased by 28 per cent over the year of the study. To reduce relative poverty, improved credit and marketing systems plus more research and extension support to enhance productivity and create higher on‐farm incomes for the poorer tenants are needed. In addition, macro and sector policies that subsidise labour‐saving technologies and lower incentives for export and domestic crop production need to be reformed to promote greater employment and higher off‐fa...

Plant-Location Model Suboptimization for Large Problems

O PERATIONAL constraints of the Stollsteimer long-run spatial model have been severe. The data input requirements are large. More serious, for all but small problems the optimization tends to be computationally demanding to the point of infeasibility. The purpose of this paper is to enlarge the scope of problem for which the basic computational model can be used. Specifically, an algorithm is suggested that operationalizes the Stollsteimer model for plant location problems where a large number of plants may enter the optimum solution.

Effects of Supply Variations on Costs and Profits of Slaughter Plants

Preferences of the firm for stable or varying flows of raw products are considered. A decision model involving rate and hours of plant operation is developed to measure the, impact of supply variations on plant costs and profits. Situations in which the firm can and cannot predict raw material receipts with certainty are simulated. Varying supplies were found to raise costs of slaughter, but plants with stable supplies lose profits as long as product and input prices vary. Therefore individual firms, especially those that can forecast with a high degree of success, are unlikely to prefer stable to varying supplies.