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Price risk management instruments in agricultural and other unstable markets

Jean-Marc Boussard ()

Risk and Insurance from EconWPA

Abstract: Most economists congregate on the idea that commodity price instability should be reduced. Since at least one century a variety of instruments have been designed to that end, without much success, especially for agricultural commodities. The failure might be a consequence of the fact that most policies have neglected the reason for price fluctuations. Commodity price fluctuations are endogenous, caused by the market equilibrium local dynamic instability. It means that any measure relying on the “law of large numbers” is likely to be inoperative. In addition, because, in agriculture, the production function is homogenous and of degree one, any effective stabilisation leads to over production. Only production quotas can cope with these difficulties. They may be designed in such a way as to maintain the essential feature of market equilibrium, i.e. marginal cost equating price.

Keywords: Crop; insurance; agriculture; commodity; price; stabilisation (search for similar items in EconPapers)
JEL-codes: L16 G22 O13 Q13 Q14 Q28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-fin and nep-rmg
Date: 2005-05-05
Note: Type of Document - pdf; pages: 10. Discussion paper
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