On Stabilizing or Deregulating Food Prices

Sjur Flåm, Ivar Gaasland () and Erling Vårdal ()
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Ivar Gaasland: INSTITUTE FOR RESEARCH IN ECONOMICS AND BUSINESS ADMINISTRATION, Postal: Breiviksveien 40, N-5045 Bergen, Norway

No 08/06, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: This paper studies measurement of welfare e¤ects, transient and permanent, of stabilizing or deregulating prices in Cobweb-like settings. As in Cobweb-models, producers must commit inputs in face of uncertainty. Here, however, we consider producers who are concerned with adaptations of inputs rather than price predictions. This shift of emphasis reflects two things. First, since persistent randomness causes on-going price fluctuations, point predictions are of modest concern. Second, producers are likely to care more about profits than prices. Explored below are economic issues related to transitions between regulated and unregulated equilibrium. Our focus is on convergence, stability and welfare. The main motivation and the running example centers on agricultural commodities. The paper does, however, not review the case for or against market intervention. In stead it advocates and illustrates the use of tractable tools called stochastic approximation. These tools easily produce quantitative estimates to facilitate discussion of the pros and cons.

Keywords: Keywords: price stabilization; cobwebs; convergence; stochastic approximation. (search for similar items in EconPapers)
JEL-codes: C63 D60 L51 Q11 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2006-06-15
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