Optimal hedging under output price uncertainty

The problem of optimally hedging output in the presence of output price uncertainty faced by an expected-utility-for-profit-maximizing manufacturer was examined within a theoretical and empirical framework. Specifically, the envelope theorem and indirect expected utility function were employed to derive estimating equations via Taylor series approximation. The model's application to cattle data, which indicated the decreasing absolute risk aversion of live cattle farmers, gave results that were consistent with theoretical predictions.