Introduction

Abstract

It is one of the most natural economic ‘laws’ that one and the same good or commodity should sell, at the same time, at only one price, provided that transaction costs and cost of transportation are negligible. This is the essential in JEVONS’s ‘Law of Indifference’ (JEVONS (1871)). The reason why it is so natural is that, otherwise, there would be an incentive to buy at the low and to sell at the high price coming up with a riskless arbitrage, profit. This operation — buying at the low and, simultaneously, selling at the high — sometimes is called a ‘spread’. If we speak of a risky spread — in contrast to the riskless spread just described — in case there is time or transportation or even processing to go between a purchase and a sale, then most economic activity consists of risky spreads: a bank collects short term funds to make long term loans facing the risk of rising interest rates; a dealer buys lots of commodities to resell them in later periods facing the risk of a weak demand or of an aggressive competitor; a producer buys raw materials, employs workers and machines to produce and to sell goods facing the risk of decreasing prices or changing tastes. In sum, risky spreads are the heart of any economic activity at all, the existence of rikless spreads, however, should be considered as a temporary abnormity.