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Errors in the Numerical Assessment of the Benefits of Price Stabilization

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  • L. Jay Helms

Abstract

This paper presents a simple computational procedure for determining a consumer's willingness to pay to have a price stabilization policy implemented. Numerical simulations are then provided which demonstrate that the commonly used expected surplus measures (whether Hicksian or Marshallian) can in fact seriously misstate the true benefits of price stabilization. These simulations also illustrate the extent to which the results may be dependent upon the assumptions made—implicitly or explicitly—regarding the consumer's attitudes toward risk, thereby underscoring the need to conduct sensitivity analyses to determine the robustness of cost-benefit assessments with respect to these assumptions.

Suggested Citation

  • L. Jay Helms, 1985. "Errors in the Numerical Assessment of the Benefits of Price Stabilization," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(1), pages 93-100.
    • Handle: RePEc:oup:ajagec:v:67:y:1985:i:1:p:93-100.
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    File URL: http://hdl.handle.net/10.2307/1240828
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    Citations

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    Cited by:

    1. Schmitz, P. Michael, 1991. "Do Developed Exporting Countries Contribute To Food Security? The Case Of The Ec," Staff Papers 13351, University of Minnesota, Department of Applied Economics.
    2. Gardner, Bruce L., 1985. "How Price Instability Complicates The Analysis Of Price Supports," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 14(2), pages 1-7, October.
    3. McBride, Linden, 2014. "Exploring food commodity price risk preferences among Tanzanian households," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 172437, Agricultural and Applied Economics Association.
    4. Stennek, Johan, 1999. "The expected consumer's surplus as a welfare measure," Journal of Public Economics, Elsevier, vol. 73(2), pages 265-288, August.
    5. Matthias Kalkuhl & Mekbib Haile & Lukas Kornher & Marta Kozicka, 2015. "Cost-benefit framework for policy action to navigate food price spikes. FOODSECURE Working Paper No 33," FOODSECURE Working papers 33, LEI Wageningen UR.
    6. Christophe Gouel, 2013. "Rules versus Discretion in Food Storage Policies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(4), pages 1029-1044.
    7. Gouel, Christophe, 2013. "Optimal food price stabilisation policy," European Economic Review, Elsevier, vol. 57(C), pages 118-134.
    8. Andor, Mark & Voss, Achim, 2016. "Optimal renewable-energy promotion: Capacity subsidies vs. generation subsidies," Resource and Energy Economics, Elsevier, vol. 45(C), pages 144-158.
    9. Schmitz, Michael, 1997. "Cap and Food Security," 1997 Occasional Paper Series No. 7 198056, International Association of Agricultural Economists.
    10. Wright, Brian D. & Williams, Jeffrey C., 1986. "Measurement of Consumer Gains from Market Stabilization," CUDARE Working Papers 198343, University of California, Berkeley, Department of Agricultural and Resource Economics.
    11. Pieters, Hannah & Swinnen, Johan, 2016. "Trading-off volatility and distortions? Food policy during price spikes," Food Policy, Elsevier, vol. 61(C), pages 27-39.
    12. Finkelshtain, Israel & Kella, Offer, 1991. "Obtaining contingent bounds for non-contingent equivalent variations," Economics Letters, Elsevier, vol. 36(3), pages 257-261, July.
    13. David S. Bullock & Klaus Salhofer & Jukka Kola, 1999. "The Normative Analysis of Agricultural Policy: A General Framework and Review," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(3), pages 512-535, September.
    14. Aradhyula, Satheesh Venkata, 1989. "Policy structure, output supply and input demand for US crops," ISU General Staff Papers 198901010800009909, Iowa State University, Department of Economics.

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