Econometric analysis of expected price formation

Minoru Tada

Agricultural Economics, 1991, vol. 5, issue 1, 59-73

Abstract: The current report analyses the process of producers' expected price formation through the estimation of supply functions, using vegetables and green tea in Japan as an example. At first, theoretical analysis shows that the factors which transform the producers' expected price formation from the lagged expectation to the rational expectation are as follows: decrease in information price, increase in managerial ability and/or organizational innovation, rightward shift of supply curve, and increase in price elasticity in supply curve. Second, supply functions are estimated by using the price expectation formation which include the rational expectation and the lagged expectation as its extreme form. Consequently, producers' price expectations were found to approach the rational expectations in the case of Chinese cabbage, lettuce and green tea, whose supply curves show high price elasticities, and whose producers' organizations gather price information and monitor the production more than other crops taken in this paper.

Date: 1991
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