Hostname: page-component-586b7cd67f-t7fkt Total loading time: 0 Render date: 2024-11-25T19:47:55.151Z Has data issue: false hasContentIssue false

How Price Instability Complicates the Analysis of Price Supports

Published online by Cambridge University Press:  10 May 2017

Bruce Gardner*
Affiliation:
University of Maryland
Get access

Extract

Agricultural economists often invoke instability, risk, and uncertainty as central concepts in understanding farm policy. Yet in analyzing policy alternatives we typically use comparative static methods that shift supply and demand curves and find new equilibria without reference to uncertainty in the economy or economic behavior other than profit-maximizing (risk neutral). This is true even in the most complex models being used to analyze 1985 farm bill alternatives, such as Johnson, et al. (1985). The aim of this paper is to understand this combination of simultaneous emphasis and neglect of risk considerations in policy analysis, and to assess costs of ignoring risk. The discussion consists of two parts, the first on normative considerations and the second on positive economics and risk.

Type
Research Article
Copyright
Copyright © 1985 Northeastern Agricultural and Resource Economics Association 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Gardner, B. L.Commodity Options for Agriculture.” American Journal of Agricultural Economics 59 (December 1977):986992.Google Scholar
Gardner, B. L.Is it Wrong to Fluctuate: Policy Uses of Risk Management Research,” S-180 Annual Conference, March, 1985.Google Scholar
Helms, L. J.Errors in the Numerical Assessment of the Benefits of Price Stabilization.” American Journal of Agricultural Economics 67 (Feb. 1985):93100.Google Scholar
Johnson, S. R., Womack, A., Meyers, W. H., Young, R., and Brandt, J.Options for the 1985 Farm Bill,” FAPRI #1-85, Food and Agricultural Policy Research Institute, 1985.Google Scholar
Just, R., Hueth, D., and Schmitz, A. Applied Welfare Economics, Englewood Cliffs, N.J.: Prentice-Hall, 1982.Google Scholar
Muth, John F.Rational Expectations and the Theory of Price Movements.” Econometrica 29 (1961):315335.Google Scholar
Oi, Walter Y.The Desirability of Price Instability under Perfect Competition.” Econometrica 29 (1961):5865.Google Scholar
Turnovsky, S. J.Price Expectations and the Welfare Gains from Price Stabilization.” American Journal of Agricultural Economics 56 (1974):706716.Google Scholar