The Supply and Demand of Marketing Contracts under Risk

Bernoullian decision theory is used to characterize a firm's willingness to purchase or sell a good under contract. Contract supply and demand functions are then specified in which willingness to contract is related to contract‐pricing provisions, to decision maker risk aversion, to open market opportunities, and to other factors. On the basis of these relations, a theory of exchange is proposed which incorporates decision making under risk. Implications of the analysis differ by contract type; cost‐plus and fixed‐price forward deliverable contracts are emphasized.