Financial derivatives now substitute for physical and organizational means of managing corporate risk

Evidence

Furthermore, corporations in the United States and elsewhere seem increasingly to be becoming “financialized” in a sense additional to that of marketvalue maximization. The use of derivatives to manage financial risks such as exchange-rate and interest-rate fluctuations is established, but corporations now also have available to them derivatives of a growing range of physical substances and processes: for example, oil and gasoline derivatives, natural gas derivatives, even weather derivatives. … Derivatives of this kind allow risks that traditionally had to be managed by physical or organizational means to be hedged financially. Oil companies, for example, traditionally sought to control risk by vertical integration-ownership of an entire supply chain from oil fields, through transportation and refining, and into retail but the availability of oil and gasoline derivatives offers another route to the same goal (Merton 1998, p. 59). — Donald MacKenzie, An Engine, Not a Camera, 1178

Categorization

• XREF: Connects to financialization literature and the general theme of ‘virtual’ rather than physical corporate assets — echoes Krippner on financialization and the asset-light firm debates. — connects to: Even discount retailers now deploy sophisticated derivative hedging as routine corporate practice. — Max Haiven, Cultures of Financialization, 275; Derivative markets enable corporations to shed physical assets while retaining economic control — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1181; Derivatives are speculative techniques betting on future asset-price movements — Max Haiven, Cultures of Financialization, 153 (+2 more)
• QUESTION: Weather derivatives as a stark case — could pursue how hard it is to make a ‘weather market’ performativity-driven given weather is exogenous to economic models.

Broader Connections

• Derivative markets enable corporations to shed physical assets while retaining economic control #expands (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1181
• Industrial corporations transformed into financial hedge funds before their collapse #exemplifies (0.85) — Yanis Varoufakis, Technofeudalism, 901
• Hedge funds now increase risk rather than hedging it as originally intended #complicates (0.80) — Andrew deWaard, Derivative Media, 142
• Derivatives are speculative techniques betting on future asset-price movements #complicates (0.75) — Max Haiven, Cultures of Financialization, 153