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Price-Band Stabilization Programs And Risk: An Application To The U.S. Corn Market

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  • Holt, Matthew T.

Abstract

The impacts of introducing a partial price stabilization scheme in the U.S. corn market are investigated by using a modified version of the bounded price variation model. Specifically, a model is developed and estimated that includes rational expectations of the first three central moments of the (truncated) equilibrium price distribution. The estimated model is used to stimulate market equilibrium effects of introducing upper and lower price limits through a tax-subsidy scheme. The results show that corn producers are downside risk averse, and that market feedback effects of price stabilization can, at times, be more important than direct effects.

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File URL: http://purl.umn.edu/30749
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Bibliographic Info

Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

Volume (Year): 19 (1994)
Issue (Month): 02 (December)
Pages:

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Handle: RePEc:ags:jlaare:30749

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Web page: http://waeaonline.org/
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Keywords: Demand and Price Analysis;

References

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  1. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-32, December.
  2. Holt, Matthew T. & Moschini, GianCarlo, 1992. "Alternative Measures Of Risk In Commodity Supply Models: An Analysis Of Sow Farrowing Decisions In The United States," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(01), July.
  3. Innes, Robert, 1990. "Government Target Price Intervention in Economies with Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1035-52, November.
  4. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June.
  5. Gardner, Bruce L, 1992. "Changing Economic Perspectives on the Farm Problem," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 62-101, March.
  6. Holt, Matthew T., 1989. "Bounded price variation models with rational expectations and price risk," Economics Letters, Elsevier, vol. 31(4), pages 313-317, December.
  7. Shonkwiler, J S & Maddala, G S, 1985. "Modeling Expectations of Bounded Prices: An Application to the Market for Corn," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 697-702, November.
  8. Quiggin, John C & Anderson, Jock R, 1981. "Price Bands and Buffer Funds," The Economic Record, The Economic Society of Australia, vol. 57(156), pages 67-73, March.
  9. Miranda, Mario J & Helmberger, Peter G, 1988. "The Effects of Commodity Price Stabilization Programs," American Economic Review, American Economic Association, vol. 78(1), pages 46-58, March.
  10. Eeckhoudt, Louis & Hansen, Pierre, 1980. "Minimum and Maximum Prices, Uncertainty, and the Theory of the Competitive Firm," American Economic Review, American Economic Association, vol. 70(5), pages 1064-68, December.
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Citations

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Cited by:
  1. Bullock, David S. & Garcia, Philip & Shin, Kie-Yup, 2005. "Measuring producer welfare under output price uncertainty and risk non-neutrality," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), March.
  2. Peterson, Hikaru Hanawa & Tomek, William G., 2003. "How Much Of Commodity Price Behavior Can A Rational Expectations Storage Model Explain?," Staff Papers 30712, Kansas State University, Department of Agricultural Economics.
  3. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," Discussion Papers 154775, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
  4. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Understanding the Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150331, Agricultural and Applied Economics Association.
  5. Parcell, Joseph L. & Kastens, Terry L. & Dhuyvetter, Kevin C. & Schroeder, Ted C., 2000. "Agricultural Economists' Effectiveness In Reporting And Conveying Research Procedures And Results," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 29(2), October.
  6. Kim, Kwansoo & Chavas, Jean-Paul, 2002. "A Dynamic Analysis Of The Effects Of A Price Support Program On Price Dynamics And Price Volatility," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(02), December.
  7. Mbaga, Msafiri Daudi & Coyle, Barry T., 2003. "Beef Supply Response Under Uncertainty: An Autoregressive Distributed Lag Model," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(03), December.

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