Hedging against postage rate increases
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Authors
Jalbert, Terrance
Stewart, Jonathan
Landry, Steven P.
Subjects
hedging
postage rates
forever stamps
postage rates
forever stamps
Advisors
Date of Issue
2011-07-04
Date
Publisher
Henry Stewart Publications
Language
Abstract
Canada Post issued the first permanent stamp on 16th November, 2006.
The United States Postal Service soon followed by introducing the forever stamp on
12th April, 2007. The stamps were developed to ease the transition associated with
increases in postal rates. The stamp price equals the one-ounce cost of first-class
postage at the time of purchase. The stamp allows consumers to receive services
equal to the value of a first-class postage stamp at the time of use. Permanent stamps
are unique given their insensitivity to postal rate increases, thereby offering the
potential to hedge against future postage rate increases. Moreover, postal services
commonly pre-announce rate changes providing a several week notice before the
change takes effect. The careful treasury manager conceivably can minimise mailing
costs around postal increases by strategically purchasing permanent and forever
stamps. Indeed, the enterprising entrepreneur might make a market by purchasing
stamps prior to the rate change and selling them after for the new going rate. In this
paper the authors develop a model to determine optimal stamp purchases around
postal rate increases. The results indicate it is optimal for most individuals to
purchase between a 90- and 730-day supply of permanent postage when a $0.01
increase in postage rates is imminent. From a policy perspective, the results imply
that postal authorities should monitor permanent stamp purchase patterns to
determine the optimal timing and magnitude of postal rate increases.
Type
Article
Description
Series/Report No
Department
Graduate School of Business and Public Policy (GSBPP)
Organization
Naval Postgraduate School (U.S.)
Identifiers
NPS Report Number
Sponsors
Funder
Format
15 p.
Citation
Jalbert, Terrance, Jonathan Stewart, and Steven P. Landry. "Hedging against postage rate increases." Journal of Corporate Treasury Management 4.3 (2011).
Distribution Statement
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.