TY  - JOUR
AU  - Polinsky,A. Mitchell
TI  - Fixed Price Versus Spot Price Contracts:  A Study in Risk Allocation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1817
PY  - 1987
Y2  - November 1987
UR  - http://www.nber.org/papers/w1817
L1  - http://www.nber.org/papers/w1817.pdf
N1  - Author contact info:
A. Mitchell Polinsky
Stanford Law School
Stanford University
Stanford, CA  94305
Tel: 650/723-0886
Fax: 650/723-3557
E-Mail: polinsky@stanford.edu
AB  - Thi spaper is concerned with the risk-allocation effects of alternative types of contracts used to set the price of a good tobe delivered in the future. Under a fixed price contract, the price is specified in advance. Under a spot price contract, the price is the price prevailing in the spot market at the time of delivery.These contract forms are examined in the context of a market in which sellers have uncertain production costs and buyers have uncertain valuations. The paper derives and interprets a general condition determining which contract form would be preferred when the seller and/or the buyer is risk averse. In addition, an example is provided in which a spot price contract with a floor price is superior both to a "pure" spot price contract and a fixed price contract.
ER  -